Sugar Traders Split as Brazil Dryness Weighed Against Surpluses

(Businessweek) – Sugar traders are divided on the outlook for prices, with some concentrating on dryness in leading producer Brazil that may cut output and others focused on excess supplies with another year of surplus.

Thirteen of 28 traders surveyed at the annual Kingsman SA sugar conference in Dubai that started Feb. 8 said they were bullish on raw sugar this year, 12 were bearish and three neutral. Futures traded in New York fell in the past three years, the longest losing streak in more than two decades. A fourth year of price declines would be the biggest stretch since at least 1965, exchange data on Bloomberg show.

Dry weather in Brazil will probably cut output in the country’s main growing region by at least 5 percent, according to Pully, Switzerland-based Ecom Agroindustrial Corp., which has offices in the South American nation. Global output will be 2.1 million tons bigger than consumption in the 2014-15 season that starts in October, a fifth year of surpluses, says Kingsman, a unit of McGraw Hill Financial Inc.’s Platts.

“This will be a year of transition, in which the world will still digest the issue of high stocks, with low local prices,” Paulo Roberto de Souza, chief executive officer of Sao Paulo-based Copersucar SA, a producers’ cooperative with 47 mills, said in an interview in Dubai yesterday. “We will see a turnaround when domestic prices start to rebound.”

Sugar prices rose 5.7 percent in the past two weeks as dry weather threatened to cut output for the crop in Brazil’s center south, the main growing area in the biggest producer. The harvest that starts in April will be delayed as growers leave cane longer in the fields to grow, said Plinio Nastari, president of Barueri, Brazil-based consultancy Datagro. While Ecom, Louis Dreyfus Commodities and Kingsman forecast surpluses for next season, Macquarie Group Ltd. and Datagro see shortages.

India Subsidy

Futures traded on ICE Futures U.S. may rise 13 percent this year to 18.6 cents a pound, which would be the highest for a most-active contract since October, according to the mean estimate of the 13 bullish traders surveyed. The 12 people betting on a decline saw prices falling to 13.7 cents a pound, the lowest since May 11, 2010. The three traders with a netural rating put average prices at 16.2 cents a pound.

Prices fell as much as 2.2 percent to 15.38 cents a pound yesterday on speculation India will approve a subsidy that will allow millers to boost exports. Adding more Indian exports isn’t helping the world address the current sugar surplus, said Piero Carello, a London-based general manager at Olam International, which owns two mills in the world’s second-biggest producer.

China’s Reserves

Global sugar inventories will rise to a record 43.4 million tons in the 2013-14 marketing year, the U.S. Department of Agriculture estimated in November. Indian stockpiles will rise to 9.8 million tons by Sept. 30 from 9.3 million tons on Oct. 1, 2013, according to the New Delhi-based Indian Sugar Mills Association. In China, reserves were 6.5 million tons at the end of 2013, Liu Hande, CEO of Guangdong Zhongqing Sugar Group and vice director-general of the China Sugar Association, said in Dubai on Feb. 9.

“If you assume the world is heavily stocked, because stocks-to-use are relatively heavy still after the last couple of years of surpluses and relatively low prices, I guess in the mid to high 40 percent, then you suspect that you won’t solve the surplus by adding demand,” Olam’s Carello said. “Therefore you need to destroy supply and the easiest way to destroy supply” would be to produce ethanol in

Brazilian Millers

Brazilian millers will probably keep directing more cane to making ethanol next year, especially if the government raises the mandated share of the biofuel into gasoline to 27.5 percent from 25 percent now, said Luis Roberto Pogetti, chairman of Copersucar SA. Processors in the center south used 54.7 percent of all the cane harvested from April 1 to Jan. 15, when most mills had closed for the season, to make the biofuel, Unica data showed. That’s up from 50.4 percent a year earlier.

A potential El Nino weather pattern, which could bring rainfall to Brazil at the start of the season, would also add to delays to the crop and reduce the time available for processing, according to Copersucar’s de Souza. An El Nino pattern may occur in the next few months as the Pacific Ocean warms, Australia’s Bureau of Meteorology said Jan. 28.

“The drought in Brazil is worrying and I just think it’s too much to expect that things are going to remain at a price level in which there’s no opportunity for things to go wrong,” Jacob Robbins, former head of sweeteners at the Coca-Cola Co. and chief executive officer at Emeterra, an agribusiness company, said in an interview in Dubai. “There’s a lot that can go wrong between now and the end of the year, in Brazil in particular.”