Licht Says Sugar Glut May Send Futures to Lowest Since 2010

(Bloomberg) – Sugar harvests worldwide will exceed demand for a fourth year, potentially pushing down futures by as much as 12 percent to the lowest level since 2010, according to Germany-based researcher F.O. Licht GmbH.

“Prices will remain under pressure,” Managing Director Christoph Berg said in a phone interview before a conference in Bangkok today. “The level of around 16-17 cents might be the floor that we may see in the third quarter during seasonal weakness.” Futures last traded at 16 cents in July 2010.

Rates plunged 50 percent from a three-decade high in February 2011 as farmers from Thailand to Russia boosted plantings. The decline made sugar the worst performer on theStandard & Poor’s gauge of 24 raw materials ranging from natural gas to copper in the past year. The drop in prices means farmers in countries such as India and Ukraine may seek better returns in other crops, Kingsman SA said in a report e-mailed Feb. 1.

The glut in the year starting April 1 may be smaller than the 7 million tons to 8 million tons this season, said Berg, declining to give a figure. Kingsman estimates the surplus will shrink 51 percent in the 12 months starting Oct. 1.

While output in Brazil, the biggest producer and shipper, will probably increase 6 percent to about 36 million tons, ethanol supply may climb about 10 percent to 26.4 billion liters, said Berg. The price gap between sugar and ethanol is not big enough to spur millers to make more ethanol at the expense of the sweetener, he said.

Ethanol Trigger

“Sugar will have to fall to around 16-17 cents to make millers switch to ethanol on a larger scale,” said Berg. “If sugar falls to that level, it may increase ethanol output inBrazil by 1 billion liters and may reduce sugar output by 1 million tons.”

Brazil said last month it would boost the amount of ethanol blended into gasoline to 25 percent in May from 20 percent.

Government mandates in Brazil, India, the Philippines and Thailand will help boost ethanol production, Berg said at F.O. Licht’s Sugar and Ethanol Asia 2013 conference today. Global output will probably increase to 102.93 million cubic meters in 2013-2014 from 99.22 million cubic meters a year earlier, he said. Demand is estimated at 102.92 million cubic meters, up from 98.88 million cubic meters in 2012-2013.

Berg said sugar has become a more competitive feedstock for ethanol compared with corn. The grain reached a record $8.49 a bushel last year and traded at $6.855 in Chicago today.

Smaller Crops

Sugar production is expected to decline in China, India,Pakistan and Thailand, said Berg, without providing estimates. World consumption may gain about 2 percent as the global economy recovers and lower prices spur demand, he said.

Output in Thailand, the second-largest exporter, may drop below a government estimate in the current harvest from a record last year, said the Cane and Sugar Industry Policy Bureau, a division of the Office of Cane and Sugar Board. Production will be less than 9 million tons in the year started Nov. 1 as dry weather cut cane yields, the bureau’s director Rangsit Hiangrat said at the conference. The forecast was made by the board this month. The country produced 10.2 million tons in 2011-2012.

Supplies worldwide will be 5.6 million tons more than demand in the 12 months starting Oct. 1, Lausanne, Switzerland-based researcher Kingsman said in the report. That compares with 11.5 million tons in 2012-2013. Production will drop 1.8 percent to 178.5 million tons as consumption rises 1.6 percent to 172.9 million tons from a year earlier, it said.

Raw sugar for May delivery declined 0.3 percent to close at 18.09 cents a pound on ICE Futures U.S. yesterday. Prices reached 36.08 cents on Feb. 2, 2011.