End of Sugar Boom in Sight on ‘Huge’ Brazil Output

Raw sugar prices probably will decline from a 29-year high this year as a “huge increase” in production driven mainly by Brazil may balance the market, according to German research company F.O. Licht.

“The foundation for the end of the sugar boom is currently being laid,” Christoph Berg, the company’s managing director, said in an interview at a conference in Manila today. “Prices are to fall over the course of 2010.”

The raw variety more than doubled last year, gaining the most since 1974, after rains and drought cut supply in Brazil and India, the largest producers. Output may surge this year as high prices prompt farmers to boost planting and weather in Brazil improves, Berg said.

The global shortage has extended gains in raw and white sugar futures this year, while wheat, corn and soybeans have slumped.

Raw sugar for March delivery slipped 2.1 percent to 29.28 cents a pound on ICE Futures U.S. in New York yesterday, after earlier climbing to 30.4 cents, the highest since January 1981. Refined sugar may extend its rally, climbing to more than $800 a metric ton, fueled by strong demand from Pakistan and India, said Berg.

Raw futures will remain at more than 20 cents a pound “because of a high deficit three years in a row, high production costs and a lack of subsidized sugar,” he said. “White sugar has an upside potential,” he said, because some raw sugar buyers have switched to the refined variety.

In London, white sugar for May delivery dropped 0.6 percent to $739.30 a ton yesterday. The contract climbed as high as $767 a ton on Jan. 21, the highest price since at least January 1989.

‘Balanced Market’

India, a key driver of demand, may import as much as 7 million tons this season, Berg said. Pakistan, Asia’s third- largest user, plans to import an additional 700,000 tons of refined sugar to cut prices and meet demand, the state-run Trading Corp. of Pakistan said last week.

Global output in the 2010-2011 season that begins in October will probably increase sharply, driven by a strong rebound in Brazil, Berg said. Output from India, Pakistan and Thailand will also increase, he added.

“There is a good chance that we’ll see a balanced market” in the next season, Berg said.

The cane harvest in Brazil will probably rise to 50 million tons in 2010-2011, from an estimated 35 million tons in the current year, because high prices have encouraged farmers to plant more, F.O. Licht said in a presentation in Manila today.

Tight Supplies

This year, the sugar deficit may total 8 million tons as “supply is tighter than previously expected,” Berg said.

F.O. Licht revised its production forecast for 2009-2010 to 157.4 million tons, more than 2 million tons lower than its previous estimate, because of declining output in India, Pakistan, Thailand and Mexico. Consumption will be 165.4 million tons, the company said.

The International Sugar Organization estimated on Nov. 13 the supply deficit will be 7.2 million tons in the year ending September, moving to a 500,000-ton surplus the next year.

Still, the global sugar deficit may continue into next season, maintaining prices at more than 30 cents a pound, G.S.C. Rao, executive director of Indian miller Simbhaoli Sugar Ltd., said in an interview in Manila yesterday.

The global shortfall next season may be about 7 million tons as “supply continues to be tight in both raw and white sugar,” Rao said.