Sugar’s Bumpy Year Seen Ending Right Back Where It Started

(Bloomberg) – Sugar prices are likely to go everywhere and nowhere this year.

The year will bring a lot of volatility that ends with prices little changed from 2015, according to a Bloomberg survey of traders, analysts and investors at the Dubai Sugar Conference last week. It’s already been a rocky start for the commodity, which plunged 14 percent in January as funds cut bullish bets.

Traders disagree on whether the world will face surpluses or deficits because the export market is close to being balanced, said Jack Hannon, an analyst at Olam International Ltd., one of the world’s largest food traders. Rising Chinese demand is coinciding with a smaller Indian crop and forecasts for a surge in production next season from the European Union and Brazil.

“It’s not a straight bearish or a straight bullish view,” said Alexandre Luneau, executive vice president of market risk management at Tereos, France’s largest beet sugar processor and the second-biggest producer in Brazil. “We are in the camp that think we’re touching the bottom now, but we don’t see a lot of upside.”

Sugar will end the year at 15.1 cents a pound, implying an annual loss of less than 1 percent, according to the median estimate from a Bloomberg survey of 28 people attending the private event in Dubai from Jan. 31 to Feb. 2. Estimates ranged from 12 cents to 18 cents.

Prices rose 5 percent last year, recovering from a 55 percent slump in the previous four years caused by at least four years of oversupply. Raw-sugar futures traded at 13.45 cents on ICE Futures U.S. in New York on Monday.

The market will be volatile through year-end, said Auke Vlas, commercial director at Paris-based Sucres et Denrees SA, or Sucden. Prices have fallen this year after small and large speculators excluding index funds cut bullish bets from the highest since 2008. Funds that had bet on supply deficits boosted wagers too early and too fast, according to Vlas.

Olam, based in Singapore, estimates global production will be 6.2 million metric tons less than consumption in the 2016-17 season staring Oct. 1 as Sucden sees the market returning to balance. Opinions for the current season vary from Olam’s shortage of 5.5 million tons to ED&F Man Holdings Ltd.’s 2.5 million-ton deficit.

Currency Effect

A weaker real is encouraging more supply from top producer Brazil, where farmers pay most costs in the local currency and sell sugar for dollars. Copersucar SA, which has 37 associate mills, sees the crop rising about 10 percent to 33 million tons this year. Tereos, which owns seven Brazilian mills, pegs output at 34.5 million tons.

The end of European Union quotas next year may mean producers in the bloc will start to boost plantings for the 2016-17 season. Sucden estimates the region’s beet processors will increase output by 22 percent to 17 million tons.

On the other hand, the market could be balanced out by less supply from India, the second-largest producer, and bigger Chinese demand.

Dry weather last year meant Indian farmers planted less cane and Sucden estimates output will fall by 2 million tons in 2016-17. Chinese imports may remain large as long as it’s profitable for refiners, said Kona Haque, head of research at ED&F Man. Last year, the country bought record amounts, customs data showed.

“There’s less feeling that we are going to collapse and more perhaps of status quo,” said Jonathan Drake, chief operating officer at RCMA Commodities Asia and one of the organizers of the Dubai Sugar Conference.