Kingsman Cuts Sugar Surplus Forecast by 5.7% on Brazil Ethanol

(Businessweek) – The global sugar surplus will be smaller than previously forecast as millers in Brazil, the world’s largest producer, make more ethanol next year, Kingsman SA said in its fourth estimate for the 2013-14 season.

Global production will be 4.4 million metric tons higher than consumption in the 12 months started Oct. 1, the Lausanne, Switzerland-based unit of McGraw Hill Financial Inc. (MHFI:US)’s Platts said in a report e-mailed today. That compares with a previous forecast of 4.7 million tons. Millers in Brazil’s center south, the nation’s main growing region, will process more cane this year, leaving less left over for 2014, according to Kingsman. The area is also set to make more ethanol next year.

“We’ve decreased our estimate for sugar for center south Brazil in 2014-15 because we reduced our estimate for stand-over cane as they will be crushing more this year,” Jonathan Kingsman, the company’s founder, said by phone today. “Also, we expect that more sucrose will be transferred to ethanol. The reduction on the October to September is entirely based on our view of the center south Brazil new crop.”

Raw sugar futures, down 15 percent this year, are heading for a third annual decline, the longest slump since 1992. Prices slid as producers from Brazil to Australia, the third-biggest shipper, boosted output after futures reached a 30-year high in February 2011. The sweetener is the eighth worst-performing commodity this year in the Standard & Poor’s gauge of 24 raw materials.

Global sugar production will be 178.7 million tons in the 12 months started Oct. 1, down 1.7 percent from a year earlier, Kingsman estimates. Consumption will rise 1.5 percent to 174.3 million tons in the period, according to the report. Prices in New York, which fell to the year’s low July 16, rebounded to the year’s high Oct. 18, before resuming declines.

Surplus

On a national crop year-basis, which starts when each of the producing nations begins harvesting, the surplus will be 20 percent higher than previously forecast partly because of bigger crops in the Northern Hemisphere, according to Kingsman’s estimates. Supplies will exceed demand by 5.35 million tons, up from a previous forecast of 4.45 million tons.

While there will be more supplies, the effect on global trade flows is likely to be “muted” as “a significant part of the increased production is in the NAFTA region and won’t necessarily hit the world market,” Kingsman said, referring to the North American Free Trade Agreement, which guarantees movement of goods between the U.S., Canada and Mexico.

Millers in Brazil’s center south will crush 593 million tons of cane this year, beating the previous forecast for 585 million tons, Kingsman estimates. Lower yields will compensate for the additional amount of cane, leaving sugar production at 34.1 million tons, unchanged from last year and up from an October estimate of 33.7 million tons, according to the report.

Ethanol

“If all that additional cane had been used for sugar production, we would have had an extra 1 million tons of sugar,” Kingsman said. “However, as we head into the end of the crop, millers are prioritizing ethanol production.”

Producers in Latin America’s biggest economy make sugar and ethanol from raw material sugar cane. Millers in the center south directed 54.4 percent of all the cane gathered from the start of the harvest in April through to the first half of November to making ethanol, data from Sao Paulo-based industry group Unica showed. That’s up from 50.2 percent a year earlier.

With a four percent increase in gasoline prices at the end of last month, and a further fuel-price boost expected next year, the share of cane directed to making sugar may be reduced next year, Kingsman said. Motorists in Brazil can fill up their cars with either pure ethanol or a blend of ethanol and gasoline. Higher fuel prices make ethanol more competitive.

Thailand

Sugar production in Thailand, the world’s second-biggest exporter, will rise 13 percent in 2013-14 to 11.7 million tons from a year earlier, the researcher forecasts. Yields will gain a boost from “good” monsoon rains, while planted areas increased as cane is among the most profitable crops. In India, the second-biggest producer, output will be 25.4 million tons, unchanged from a previous estimate, and demand there is forecast at 25.2 million tons, according to the report.

Mexico will produce 6.6 million tons, an increase of 400,000 tons from a previous forecast as the planted area increased, Kingsman said. Output in the U.S. will reach 7.8 million tons, up 300,000 tons from the previous forecast. Russia will produce 4.35 million and the European Union 16.3 million tons, both unchanged from the previous forecast.

“We are still at the beginning of the 2013-14 cane harvest for the two giants in sugar production in Asia: India and Thailand,” Kingsman said. “Although everyone expects the two to produce bumper crops there could be some swings up or down during the harvest mainly due to the weather, or due to possible cane arrears in India,” the researcher said, referring to the money mills owe farmers for cane purchases.