‘Too early’ to rate Thai drought as prop for sugar prices

(Agrimoney) – It is “too early” yet to rate Thailand’s drought a major worry for the sugar market, ED&F Man said, flagging large supplies of the sweetener already built up in the second-ranked exporter of the sweetener.

A drought billed as Thailand’s worst in decades has raised concerns of Bangkok running out of tap water and cut levels of usable water in major reservoirs, outside the west of the country, to below 10% of capacity.

Nearly 20% of the country has been declared an emergency disaster zone because of the lack of rainfall, which some commentators are linking to the El Nino weather pattern, which has a history of causing drought in South East Asia.

US Department of Agriculture officials warned this week that rice production in Thailand, the top exporter of the grain, would fall for a second successive season for the first time since the early 1990s.

‘Conspicuous by its absence’

In cane-growing areas of Thailand too, rainfall “continues to be conspicuous by its absence,” said ED&F Man, noting that precipitation in June was 37% below the five-year average.

Rainfall last week came in at just 4mm, compared with the average of 33mm.

While rainfall levels in the “next few months… will be crucial in determining the size of the 2015-16 Thai cane crop”, it is as yet “too early for major concerns”, the London-based commodities house said.

There is still some time yet before the start of the next crushing season, for which many commentators have voiced upbeat expectations, in part thanks to a switch in area from rice to cane.

The International Sugar Organization last month flagged expectations of a rise to 107m-115m tonnes in the 2015-16 crush, up from the 106.0m tonnes processed in the last crushing season, which ended in mid-May.

Price impact

Indeed, ED&F Man highlighted that, with Thai sugar exports slow, there was even more of the sweetener available in the country than a year ago, when a “huge availability of raw sugar” depressed New York’s October futures contract, relative to the March 2015 lot.

This time, the spread between October and March futures “will be under pressure” until a home of the Thai supplies is found, the group said.

New York’s October 2015 futures contract stood at 12.35 cents a pound in early deals on Wednesday, up 0.2%, while the March 2016 lot stood down 0.2% at 13.54 cents a pound.