Rout in sugar futures not over yet

(Agrimoney) – The rout in sugar futures, which has driven prices to a four-year low, is not over yet, Abares said, as it hiked its forecast for a world production surplus, citing better prospects for output in India, Thailand and even Brazil.

Abares, the official Australian commodities bureau, cut by 2.0 cents to 14.0 cents a pound its forecast for the average New York futures price, on a spot basis, in the 2014-15 season, starting next month.

While a little above the 13.78 cents a pound at which New York’s spot October contract was trading at on Tuesday, up 0.8% on the day, the forecast is well below the futures curve for the season.

The July 2015 contract, for instance, stood at 17.19 cents a pound.

“The forecast price decline reflects large carry-over stocks from 2013-14 and forecast higher production than consumption in 2014-15, which is expected to result in record world stocks,” Abares said.

The bureau added: “If realised, the forecast world sugar indicator price will be the lowest since 2009�10 but still higher than the 10-year average to 2008-09 of 12 cents a pound.”

‘Favourable returns’

The lower price expectation reflects an increase to 1.2m tonnes, from 300,000 tonnes, in Abares’ forecast for the world production surplus in 2014-15.

Although acknowledging that low prices will lift consumption more than previously forecast, by 3.8m tonnes year on year to 182.5m tonnes, the bureau was more upbeat on production too, ditching expectations of a  decline in volumes.

The estimate for production by Thailand, the second-ranked exporting country, was lifted by 1.3m tonnes to a record 12.2m tonnes, thanks to improved ideas on cane plantings.

Abares flagged “favourable returns” for cane producers, “largely as a result of the Thai Government redirecting subsidies for rice production to sugar production”.

Brazil upgrade

The forecast for Indian output was raised by 1.3m tonnes to 27.3m tonnes, thanks to expectations for higher sugar concentrations in cane, given a weaker monsoon thjis year.

“Partially offsetting the effect of this increase is an estimated 2% decline in the area of cane harvested as a result of Indian farmers shifting to production of more profitable alternatives – rice, vegetables, grain sorghum and mint.”

The estimate for output from Brazil, the top producing country, was also lifted by 1.3m tonnes, to 39.3m tonnes, thanks to an improved estimate for the cane harvest, upgraded by 5m tonnes to 620m tonnes.

The raised cane harvest estimate, while still some 5% lower than last year’s result, contrasts with a series of downgrades from other commentators, following persistent drought in the key Centre South region.

Range of forecasts

Abares’ forecast of a 1.2m-tonne world sugar surplus in 2014-15 puts it among the most generous observers, although behind the International Sugar Organization, which has forecast production exceeding use by 1.3m tonnes.

ED&F Man foresees a 2.8m-tonne surplus.

However, many forecasters, citing a weak Indian monsoon and Brazil’s dryness, see a production shortfall, which Platts Kingsman has pegged at 2.09m tonnes.