Goldman Sachs Lowers Sugar Price Forecasts on Brazil Weather

Goldman Sachs Group Inc. cut its price forecasts for sugar futures traded in New York, citing improved weather in leading producer Brazil in the second half of last month and a third year of surpluses.

Raw sugar will be at 17.5 cents a pound on the ICE Futures U.S. exchange in three and six months, the bank said in a report e-mailed today. That compares with a previous forecast of 18.5 cents a pound. Raw sugar for delivery in July fell to 16.94 cents a pound earlier, the lowest since July 16, 2010.

Sugar production in Brazil’s center south, the main growing region, surged to 1.45 million metric tons in the second half of April from 393,200 tons a year earlier, according to data from industry group Unica. Dry weather allowed harvesting to advance after rains delayed the start of the season.

“While wet weather in April delayed the beginning of the Brazilian center south harvest, the sugar cane crush is expected to be a record,” said Damien Courvalin, an analyst at Goldman Sachs in New York. “With weather improving in the second half of April, we are lowering our three- and six-months price forecast.”

Sugar output in the center south will climb to a record 35.5 million tons in the 2013-14 season that started in April from 34.1 million tons a year earlier, Unica forecasts. Ethanol production will gain to 25.4 billion liters (5.6 billion gallons) from 21.4 billion liters in 2012-13. Both sugar and ethanol are made from sugar cane in the South American nation.

Ethanol Production

A record crop will allow sugar production to climb even as more cane is directed for ethanol production, Goldman said. Unica estimates 53.8 percent of the cane will be directed to making ethanol in 2013-14 from 50.5 percent a year earlier.

“This will likely keep the global sugar market in a surplus for the third consecutive year in 2013-14,” Courvalin said.

Sugar prices will rebound to 19 cents a pound in 12 months, the bank forecasts. Price support may come from a potential increase in gasoline prices in Brazil, which would result in more cane being used to make ethanol, or from potential cuts in production in India, the world’s second-biggest grower, Russia and Ukraine later this year, Goldman said.

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