A consensus of analysts see sugar prices falling during 2012 with the world sugar surplus seen at just under 8 million tonnes in 2011/12 and falling to just over 3 million tonnes in 2012/13. This is somewhat dependent on whether output will fully recover in the world largest producer Brazil, the amount of cane diverted to produce ethanol and exports from India. Nevertheless, the surplus for 2011/12 creates a likely bearish market during 2012.
A fall in sugar prices may result in Brazilian millers diverting sugar to ethanol production. Large harvests in Europe, India and Thailand have resulted in a higher world surplus.
It is believed that Brazil’s production will not recover significantly as the lower production figures are not due to weather or the amount of cane diverted to ethanol production but mainly due to older rations and lower yields. Therefore, investment is required for an increase in yields and higher Brazilian production.
Raw sugar prices are forecast at around 22 cents during the second quarter during the Brazilian centre south harvest and at around 24 cents at the end of 2012. White sugar is forecast at around $600 during the second quarter and around the same at the end of 2012. Weather patterns could alter this forecast price projection.
The weather phenomena La Nina and El Nino are factors potentially impacting sugar supply. La Nina tends to result in drier weather in the centre south of Brazil thereby delaying crops, harvesting and crushing. El Nino which follows La Nina after the second quarter gives wetter conditions potentially impacting sucrose content. La Nina also results in heavy rains, flooding in the Asia-Pacific region and occasional drought in Africa and South America.
White sugar is currently trading around $626.50 and raw sugar at 24.62 cents.
A major factor determining sugar prices during 2012 will be the price of ethanol and as a consequence the decisions by Brazilian mills to divert cane to ethanol production. The ethanol parity is currently around the 20 cents a pound for raw sugar. Below this raw sugar price mills would be expected to convert cane to ethanol and not to sugar.