Thai Sugar Output Set for Record as Recent Rain Counters El Nino

(Bloomberg) – Sugar output in Thailand will probably expand to a record as recent rain defies a strengthening El Nino to boost cane-crop growth, according to the Office of Cane and Sugar Board.

The harvest may expand for a seventh year to an all-time high of 111 million metric tons in the season starting November, yielding 11.5 million metric tons of sugar, said Warawan Chitaroon, the director at the office’s Cane and Sugar Industry Policy Bureau. Production is at risk of falling short if drought persists, it predicts.

With El Nino keeping central Thailand at its driest in almost 30 years, expectations were emerging that the weather pattern may limit output in the world’s second-biggest sugar exporter. Crop-reviving rain may worsen a slump in global prices that last week fell to six-year low. Global supplies have outpaced demand for five straight years, and beneficial weather in parts of top exporter Brazil will aid harvesting.

“The rains started in some areas last week, which will help reduce the impact of drought,” Chitaroon said in an interview last week. “Even as prices now are lower than production costs, most farmers still favor cane than other crops because of a stability of income.”

Thailand produced an all-time high of 106 million tons of cane in the 2014-2015 season, with sugar output of 11.3 million tons, according to the cane and sugar board.

The bigger crop may offset a drought-induced reduction in yield, said Chitaroon. The estimate will be updated in September.

El Nino

The first El Nino since 2010 is getting stronger and is expected to last into next year, according to forecasters in the U.S. and Australia. The pattern affects weather worldwide, including baking parts of Asia and is already curbing the outlook for Thailand’s rice exports.

“The water shortage amid severe drought could reduce output nationwide by 5 percent,” said Suchai Limsommut, chairman of United Association of Thai Sugarcane Planters. “We pray for rain before crushing starts later this year.”

Sugar prices have tumbled 23 percent this year to the lowest level since December 2008 last week. Futures for October delivery closed 2.4 percent lower at 11.24 cents a pound on the ICE Futures U.S., after touching as low as 11.20.

Futures may climb to as high as 15 cents in the second half as the current prices are attractive for building up inventories, according to Chitaroon.

Global production may drop 0.5 percent in the 2015-2016 season to 173.4 million tons, almost matching demand, the U.S. Department of Agriculture estimates.

Inventories may drop to 40.5 million tons at the end of the season from 44.3 million tons a year earlier, the first decline since 2009-2010, the data show.