This year looks set to have proven a "turning point" for Brazil's sugar industry, nurturing a rebound which will drive output to a record high next season, the International Sugar Organization said, in its first forecasts for 2013-14.
The much-watched group, in a quarterly review, made only minor changes to its forecasts for the current 2012-13 season, edging its estimate for the surplus higher by 327,000 tonnes to 6.184m tonnes, reflecting higher estimates for Chinese and Mexican output.
The revision was, nonetheless, sufficient to edge to "above" 40%, from "around" 40%, the estimate for the world sugar stocks-to-consumption ratio, a key pricing metric, for the season.
The assessment "reinforces the initial view that the period of low stocks environment, one of the main market characteristics for four seasons from 2008-09 to 2011-12," and which drove raw sugar prices back above 30 cents a pound, "is likely to be over", the ISO said.
'Yields should improve again'
And Brazil, whose revived production hopes are proving a major factor in lifting world output to a record high of 177.6m tonnes in 2012-13, is set for a further gain in output next season, thanks to a "massive rise" in area allocated for cane replanting.
Some 10.6% of cane area in the Centre South area, which accounts for 90% of production, has been allocated this season for replanting, compared with 8.3% last season and above the average of 7.6%.
Furthermore, the rate of expansion of cane into fresh ground has risen too.
"This higher rate of expansion relative to the past couple of seasons suggests that, under normal weather conditions, agricultural yields should improve again," given the level of ageing, and lower yielding, cane taken out of production.
The expansion has been boosted by the paying down by mills of huge borrowing, with the average ratio of net debt to earnings before interest, tax, depreciation and amortisation (ebitda) � a much watched measure of leverage levels � falling to 2.9, from 7.1 in 2007-08.
'Bumper crop'
The ISO added: "All in all, there is a consensus in the industry that Brazil Centre South's cane crop in 2013-14 will be a bumper one," although there is some dispute whether it will beat the 557m-tonne record set two years ago.
The ISO forecast that national cane production, including the smaller North East region, "may touch" the record 620m tonnes set in 2010-11.
Sugar output could be even higher than that season's 38.1m tonnes, reaching 38.5m tonnes, before production growth pauses in 2014-15, when extra cane is seen going to make ethanol rather than sugar.
"Looking ahead into 2014/15, the ISO tentatively assumes modest cane production growth of about 11m tonnes, with the bulk of additional output allocated to ethanol production and little, if any, increase in sugar output."
'Neatly balanced'
The forecasts spell an extra 1.6m tonnes of sugar production next season from Brazil alone.
Nonetheless, the group was cautious over prospects for another year of global sugar production surplus in 2013-14, given the prospect of a downswing in the Indian output cycle, as rising mill arrears in payments to cane growers prompt many farmers to switch crops.
Factoring in a 4m-tonne drop in Indian output, and increasing production in countries such as Ethiopia and Sudan, "a neatly-balanced global supply and demand comes into view" for 2013-14.
New York raw sugar for March delivery stood 0.8% lower at 19.09 cents a pound in late deals.
