Indian sugar mills association

Biggest sugar glut in five years ending, say traders

Date:	20 Jan 2012

Source:	The Financial Express

Reporter:	Bloomberg

News ID:	870

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Jan 19: Traders are betting that the biggest sugar glut since 2007 will shrink in the next harvest, reversing expectations from six months ago and ending the largest decline in prices in a decade.

Raw sugar for March 2013 is trading at a premium of 4% to the July 2012 contract on ICE Futures US in New York, compared with a 6.6% discount six months ago. The switch is reflecting a change in outlook even before forecasts for the next season from the International Sugar Organisation or US Department of Agriculture. Prices may rise as much as 13% to 27 cents a pound by December 31, according to the median of 21 analyst and trader estimates compiled by Bloomberg. Futures fell 27%last year, the most since 2001, as a glut emerged after three consecutive annual shortages.

Traders are now focused on the prospect for crops in India and Brazil, which account for 38% of output. The predicted rally may curb a drop in global food prices tracked by the United Nations that drove costs to a 14-month low in December.

“Sugar is moving from an expected surplus to concern about supply,” said Bruno Lima, a Campinas, Brazil-based senior risk management consultant at INTL FCStone, a trader and adviser to commodity producers and consumers. “There`s a lot of sugar now and this is reflected in the lower price for July, while March 2013 futures are higher because Brazilian producers are concerned about the crop and there`s speculation output could shrink in other countries like India.”

The sweetener rose 3% to 24 cents this year compared with a 4.2% drop in the Standard & Poor`s GSCI Agriculture Index (SPGSAG) of eight commodities. The MSCI All-Country World Index of equities rose 4.1% as the return on Treasuries was 0.01%, a Bank of America index shows.

Hedge funds and other large speculators raised their net- long position, or bets on higher prices, by 15% to 50,403 futures and options since wagers reached a four-year low at the end of last month, data from the Commodity Futures Trading Commission show.

The harvest in India may drop as much as 4 million metric tons in the 12 months ending in September 2013, from 25 million to 26 million tons this season, if millers are unable to pay farmers for cane, said London-based ED&F Man Holdings Ltd., which trades sugar across 40 countries. The decline is more than the European Union imports in a year, USDA data show.

Decreasing output may require the country to be an importer of sugar, said Kona Haque, a commodities analyst at Macquarie Group in London. Futures exceeded 30 cents in 2010, a three-decade high at the time, after shortages drove India to tap overseas markets. The nation was last a net importer in 2009-2010, according to the USDA.

The next cane harvest in the center-south of Brazil, the main growing region, will probably reach 480 million tonnes to 520 million tonnes, according to Datagro, a Sao Paulo-based research company. Production this season fell 11% to 492.23 million tonnes by January 1, the first drop in a decade, according to data from industry association Unica.

While global supply will exceed demand by 6 million tonnes in the 12 months ending in September, combined shortages in the past three seasons reached about 20 million tonnes, said Keith Flury, an analyst at Rabobank International in London. Consumption rose every year since 1994, USDA data show. Less production from India and Brazil may be met by bigger crops elsewhere.

Australia, the third-biggest exporter, may increase sugar output by 15% to 4.5 million tonnes in the harvest from June as cane acreage expands 5 percent, according to Sydney-based Commonwealth Bank of Australia.

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