Sugar Outlook Sours as Record Crop Adds to Stockpiles

(Wall Street Journal) – You may think you have a sweet tooth – but it’s proving no match for the world’s enormous stockpiles of sugar.

“The world has produced too much sugar for the last five years,” said Robin Shaw, an analyst at broker Marex Spectron.

By the end of September, the world could be sitting on an estimated 83 million tons of sugar, according to the International Sugar Organization. In May of this year, the ISO put its estimate of world sugar consumption for the 2014/2015 season, which ends in September, at 171.49 million tons.

Brisk production in Brazil – the world’s largest producer and exporter of sugar – means there could be another record crop of cane sugar in the 2015/2016 season, according to Czarnikow, a London-based trading house. Including sugar beet, the sugar crop could be the second-highest harvest ever, after this year’s record sugar haul.

That huge stockpile has pushed sugar prices down to six-year lows. And there’s not much optimism that prices will rally any time soon, even though there are signs that demand is picking up.

Consumption may actually outstrip production for the first time in five years, said Mr. Shaw.

Czarnikow predicts there will be a deficit of 1.7 million tons in the 2015/2016 season, due to increasing demand in the developing world.

But it won’t be enough to nudge the needle on prices, which will probably continue to fall. Raw sugar prices have dropped by almost a third in the last 12 months. On Monday, the October futures contract was trading down 1.25% at 11.81 cents a pound on the ICE Futures U.S. exchange.

“We are now entering a period of deficit, but with very big stocks,” Mr. Shaw said.

Indeed, sugar is so plentiful that even the possibility of bad weather in key sugar producing regions isn’t likely to give prices a boost, said Nick Penney, a senior trader at broker Sucden Financial, in a note.

In other words, years of hording sweets have left more than enough to go around.