Sugar Market Forecast by Czarnikow to be in Shortage

(Businessweek) – Global sugar supply will lag behind demand by 500,000 metric tons in 2014-15 as production stabilizes, according to Czarnikow Group Ltd.

Production will be 184.3 million metric tons compared with 184 million tons in 2013-14, the London-based trader said in a report today. Demand will climb 2.1 percent to 183.8 million tons in 2015. The shortage estimate includes a 1 million ton allowance for disappearance.

“Production has barely moved in two years despite low prices,” Stephen Geldart, a senior analyst at Czarnikow, said in a telephone interview today. “But eventually you’ll get to a point where, for farmers, it’s no longer worth re-investing in sugar cane. We are close to seeing this happen in Brazil, while on the industrial side there are fewer mills operating this year.”

The deficit forecast comes after three years of surpluses and as top-producer Brazil’s output is seen falling due to drought. The global shortage could be bigger if adverse weather or financial difficulties of mills undermine production, or should demand growth rise, according to the report. Raw sugar prices in New York dropped more than 50 percent from a 30-year high of 36.08 cents a pound reached in February 2011 as world supplies consistently surpassed demand.

Czarnikow expects the world’s sugar supply will be 184.3 million tons in 2014-15, compared with 184 million tons the previous season. In 2012-13 it reached a record of 185.6 million tons, the trader said.

In Thailand, the second-biggest exporter, production will be a record 12.8 million tons after 12.1 million tons in 2013-14, it said.