World production is expected to fall by 1.2% to 180.8 million tonnes, the first drop since 2008-2009, and demand expected to increase by 2.1% to 176.3 million tonnes. The surplus of 4.5 million tonnes is the main factor along with weak currencies in Brazil, India and Thailand likely to put downward pressure on sugar prices throughout the year.
Sugar from producer countries and that available for export is expected to increase to a record 57.1 million tonnes while import demand will decrease for a third consecutive year. World sugar stocks are expected to rise 0.5% to 74.4 million tonnes at the end of the 2013/14 season while reserves as a percentage of consumption will fall to 42.2% from 42.9%.
Peter Baron, Executive Director of the International Sugar Organization commented at the 19th International Asia Sugar Conference “Production is erratic, depending on the weather and rainfall, but consumption is relatively resilient.” Peter Baron added that growth was likely to average about 2% per annum which would produce demand of 201 million tonnes by 2020.
“There is bearish pressure on prices, at least until we see how this 13/14 season goes on. Personally, I don’t think prices will go below 15 cents,” ISO Executive Director Peter Baron stated on the sidelines of the International Asia Sugar Conference.
Sugar exports from India, whose currency has been Asia’s worst performing this year, may exceed 1 million tonnes during the 2013/14 season according to Narendra Murkumbi, Director of Shree Renuka Sugars. Indian sugar exports may exceed 300,000 tonnes this season according to the National Federation of Cooperative Sugar Factories.
Peter Baron, Executive Director of the International Sugar Organisation, said during an interview at the 19th Asia International Sugar Conference that he expected sugar prices to remain under pressure due to a weak Brazilian currency making dollar denominated sugar exports more lucrative for producers. Producers in India and Thailand find themselves in a similar position.
Surplus sugar is expected to be 4.5 million metric tonnes for the season commencing in October. Sugar prices are expected to fall for the third consecutive year due to a sugar glut forecast at over 10 million tonnes. The sugar price has dropped by approximately 40% from 30 year highs in 2011 since production was increased by a number of countries. Even though there will be another surplus in the 2013/14 season commencing this October the size of the surplus is falling. Nevertheless, this surplus will contribute to further falls in the sugar price. Exports from India, the world’s second largest sugar producer, will only compound the problem by adding to the glut. India’s weak currency is expected to result in a significant increase in sugar exports as importers take advantage of the currency’s abysmal performance.
Peter Baron believes that prices will remain under pressure for the foreseeable future. With production higher than import demand and stock to consumption ratios above 40%, only something fairly significant is likely to alter this position.
October Sugar closed at 16.46 cents per pound on ICE, a fall of 16% on the year. Sugar futures hit a high of 36.08 cents per pound in February 2011 and a three-year low of 15.93 per pound in July. Weakening domestic currencies within producer states incentivised producers to export dollar denominated sugar rather supply the domestic market adding to the global glut. India’s currency the Rupee has fallen by 14% this year and the Brazilian Real by 13%.
Peter Baron added that in Brazil, production costs were 17 to 18 cents and that this was used as a reference by global producers. The Real’s depreciation against the dollar has softened the blow for Brazilian sugar producers from falling sugar prices.
Thailand, the world’s second largest exporter, has also seen its currency the Baht drop by over 4%. Thailand will crush 11 million tonnes from a record 105 million tonnes of sugarcane in the year starting this November according to Thai Sugar Millers Corp.
The International Sugar Organization is forecasting Brazil’s cane crop to increase by 20 million tonnes in 2011/12 to 640 million tonnes. While sugar output in the Centre South region is expected to rise by 2 million tonnes to 36.5 million tonnes.