Sugar Surges Most in 22 Years on El Nino-Driven Supply Shortfall

  • ISO new sees 5.02 million-ton shortfall for current crop year
  • Latest projection is `clearly supportive for world prices'

Raw-sugar prices surged the most in at least 22 years after the International Sugar Organization increased its forecast for a production deficit in the current crop year amid rising concern about the impact of the El Nino weather pattern on supplies.

World production in the 2015-16 period will trail consumption by 5.02 million metric tons, compared with a November estimate for a 3.5 million-ton shortfall, the International Sugar Organization in London said Tuesday in an e-mailed report.

“A statistical deficit is clearly supportive for world prices," the ISO said. All other things being equal, prices "can be expected to trend generally higher in the remaining months of 2015/16."

El Nino has already hurt plantings in Brazil the largest sugar grower, as well as India and Thailand, spurring price gains in the final months of 2015. But further heavy rainfall in Brazil has prompted forecasters to revise their numbers. Rabobank International said Tuesday it now expects a bigger deficit than the 4.7 million tons it previously saw. Last week, INTL FCStoneraised its deficit forecast to 7 million tons. Recent heavy rains in Sao Paulo province may delay the harvest that starts in April, according to MDA Weather Services.

The ISO data “reiterates that El Nino is not over -- we still don’t have the final tallies on Thai and Indian crops,” Michael McDougall, a senior director at Societe Generale in New York, said by telephone. “Pressure is increasing as we move forward, things are getting tight.”

Raw-sugar futures for May delivery soared 8.9 percent to settle at 13.90 cents a pound by 1:04 p.m. on ICE Futures U.S. in New York, the biggest one-day gain for the most-active contract since at least March 1993. In London, white sugar for May delivery jumped 6.1 percent to $395.90 a ton on ICE Futures Europe.

It’s not just adverse weather that’s supporting prices. Brazilian mills are making more ethanol from sugar cane to meet surging domestic demand for the biofuel, adding extra pressure on sugar supplies.

Recent heavy rainfall in Argentina may add even more pressure on supplies. Transport delays there have put in doubt some sugar deliveries against expiring March futures on ICE next week, SocGen’s McDougall said.

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