Thailand Trims Sugar Output Outlook as Drought Shrivels Crop

(Bloomberg) – Thailand may produce less sugar than previously forecast as a drought parches crops, potentially reducing exports from the world’s largest shipper after Brazil.

Production is estimated at about 10 million metric tons in the season that began in November from a cane harvest of 100 million tons, said Somsak Jantararoungtong, secretary general at the nation’s Office of the Cane and Sugar Board. That would be 14 percent less than an earlier estimate of 11.6 million tons, he said.

Sugar prices in New York have rebounded 44 percent since reaching a seven-year low in August after El Nino cut the sucrose content in sugar cane grown in Brazil as well as yields in Thailand and India. Lower supplies from the top producers may widen a global shortage that’s forecast at 5.3 million tons in 2015-16 by Platts Kingsman, a unit of McGraw Hill Financial Inc.

“The drought since last year parched crops, limiting cane growth, and rains,
which took place when the cane usually accumulates sucrose, reduced sweet content,” Somsak said in an interview in Bangkok on Thursday. “Dryness affected all regions, especially the central and western provinces which have lower water supply.”

Annual Gain

Sugar for March delivery rose 0.8 percent to 14.56 cents a pound on ICE Futures U.S. in New York. Futures advanced 5 percent last year, the first annual gain in five years.

Global output will fall 4.3 percent to 178.9 million tons in the 2015-16 season, which runs from October to September in most countries, trailing demand by as much as 8.2 million tons, according to trader Czarnikow Group Ltd. A shortfall is expected for the season after that, according to Kingsman and the London-based International Sugar Organization. The last time the sugar market had two straight deficits was in 2010.

Thai production may total 10.85 million tons this season, according to Tom McNeill, director of Brisbane, Australia-based Green Pool Commodity Specialists. Current sugar prices already reflect the lower Thai crop estimates, he said.

Output declined 8 percent to 3.4 million tons as of Jan. 19 from the same period a year earlier, board data show. The Southeast Asian nation produced a record 11.3 million tons of sugar from cane crushing of 106 million tons in the 2014-15 season.

Boosting Planting

Thailand’s sugar production may jump about 5 million tons in the next five years as millers expand capacity and the government encourages farmers to switch to cane from rice, Somsak said. The board may approve 12 new plants in the next few years, adding to the already existing 52 factories, and increased output will be mainly sold in Asia and also used for ethanol and biochemical production, he said.

Cane output is set to climb to 180 million tons by 2026, yielding around 20 million tons of sugar while the area under the crop will expand to 16 million rai (2.56 million hectares) from 10 million rai now, the board estimates.

“Farmers favor planting cane as it can withstand drought and survive floods, unlike rice or cassava,” Somsak said. It also gives farmers better income compared with other crops, he said.