Global sugar output may beat demand for the first time in four years if “normal weather” returns to the biggest growing nations, Kingsman SA said.
There may be a “small surplus” in the year from April 1 as farmers in Brazil and India, the top producers, boost crop area, Jonathan Kingsman, managing director of the Switzerland-based broker and researcher, said in a telephone interview.
A drop in prices this year, the first annual decline in four years, may help ease global food costs, which climbed to a record last month, according to the UN’s World Food Price Index. Sugar has more than doubled since the end of May on concern that global supplies will trail demand after crop damage from a storm in Australia and drought in Russia cut output.
“If the weather is normal, we would expect a slow erosion in values for the rest of the calendar year as the risk premium diminishes,” said Kingsman, who’s traded sugar for more than three decades. “We are less bullish because we have marked down import demand.”
The October delivery contract may fall to US$0.20 a pound (2.2kg) on ICE Futures this year, Kingsman said before a three-day conference in Dubai starting on Sunday. That contract fell 1.1 percent to end at US$0.2508 on Thursday.
A surplus in the global sugar market will stand in contrast to deficits in other crops, including wheat, which have pushed up prices and contributed to political instability in nations in North Africa and the Middle East.
The US Department of Agriculture expects global wheat output to reach 645.4 million tonnes this season, while demand would be 665.2 million tonnes.
Sugar production from Thailand, the second-largest shipper, could jump to a record 7.7 million to 7.8 million tonnes this year as wetter-than-average weather improves yield, potentially raising exports, Prasert Tapaneeyangkul, secretary-general at the Office of the Cane & Sugar Board, said in an interview.
Sugar for delivery from May through October 2013 is in backwardation, reflecting expectations that prices may ease in the coming months, Kingsman said.
Backwardation occurs when near-term contracts are more expensive than those further out.
“The spot market is in considerable premium to forward months and that is encouraging people to delay purchases and rebuild stocks,” he said, echoing a view from Cyrus Raja, general manager at Dubai-based Al Khaleej Sugar Co, the biggest sugar refiner, on Tuesday.
“Many of the destination buyers are waiting in the hope that prices will come off” with the Brazilian harvest, Raja said in an e-mail. “The physical off-take is still slow.”
Raw sugar soared to US$0.3608 per pound on Feb. 2, the highest level since 1980.
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