Sugar stockpiles left from four years of surplus will limit price gains even with the biggest shortage of the sweetener in six years ahead, said Jonathan Kingsman, founder of Kingsman SA, at the opening of a conference in Dubai.
Global sugar production will fall short of demand by 5.2 million metric tons in the 12 months starting Oct. 1, McGraw Hill Financial Inc.’s Platts Kingsman said today in its first estimate for the 2015-16 season. That would be the biggest deficit since 2009-10 after an almost balanced market this year.
Sugar surpluses have prevailed as farmers from Brazil to Australia boosted output after prices reached a 30-year high in 2011. Prices dropped 59 percent since then. Stockpiles at five producers led by Brazil, the world’s biggest grower, will peak in April at more than 40 million tons, enough to keep top consumer India supplied for 18 months, Platts Kingsman and U.S. Department of Agriculture estimates show.
“We’ve got a hangover from very high prices three years ago and the market responded with increased production,” Kingsman said in an interview in Dubai yesterday. “This will be a pivotal year before sugar moves into deficit forecast for 2015-16.”
Raw sugar futures will probably trade from 14.5 cents to 16.5 cents a pound for the next six months to a year, Kingsman said. Sugar climbed 1.9 percent in January to 14.79 cents a pound on ICE Futures U.S. in New York, capping the first monthly gain since September.
Prices decreased almost 12 percent last year as the global glut pushed prices to the lowest since 2008. At this time last year, Kingsman and Louis Dreyfus Commodities were forecasting surpluses for 2014-15 while Macquarie Group Ltd. and Brazil researcher Datagro foresee shortages.
Kingsman, 58, sold his company to McGraw Hill’s Platts in 2012 and is now serving as a consultant to Platts Kingsman. He said he expects to complete a book on sugar and commodities this year.
Global sugar production will drop to 177.1 million tons in 2015-16 from 179.1 million tons a year earlier, according to Platts Kingsman. Consumption will advance 1.7 percent to 182.3 million tons, below the 10-year average of 2 percent partly because low crude prices will curb import demand by some oil producers, Claudiu Covrig, a Platts Kingsman analyst, said yesterday.
Output in India will decline to 24 million tons from 25.5 million tons, he said. In the European Union, production is estimated to decline to 15.6 million tons in 2015-16 from 17.4 million tons, Covrig said.
Millers in Brazil’s center south, the country’s main growing region, will take at least a year before production declines. Processing of cane may fall to as low as 535 million tons in the 2016-17 season and make “slightly” less than 30 million tons of sugar, according to Covrig. Cane processing in 2015-16 will rise to 575 million tons from 570 million tons a year earlier as sugar output is 32.1 million tons compared with 32 million tons this year, Platts Kingsman said.