The global sugar market will face a mild deficit in 2014/15 due to weather risks in key producers and rising consumption, after a moderate surplus in the prior season, a Reuters poll showed on Thursday. According to the survey of 17 respondents, the sugar balance will swing to a 1.2-million-tonne deficit, driven by forecasts of rising demand and concerns over the impact on crops of a likely El Nino weather pattern in the fourth quarter of 2014.
The Reuters poll reported a median global sugar surplus of 3.2 million tonnes in 2013/14. "Weather risk is expected to support sugar futures in the fourth quarter of 2014 and in 2015," said Tracey Allen, commodities analyst with Rabobank in London. The extent of the impact of a drought on sucrose yields in the centre-south of Brazil will become apparent in the late third quarter or fourth quarter of 2014, she said.
"The projected transition of the global sugar supply-and-demand balance into a deficit in 2014/15 is expected to keep raw sugar futures trading upwards," Allen added. ICE raw sugar futures are expected to rise to 19.3 cents a lb at the end of 2014, underpinned by concerns over supply due to weather risks in the fourth quarter, such as El Nino, which could erode yields in India, Thailand and Indonesia.
El Nino-induced rains across southern Brazil in the fourth quarter could limit the pace of the harvest in the centre-south and dilute sucrose yields, limiting sugar production. The median forecast for cane production in centre-south Brazil in 2014/15 was 568 million tonnes, equivalent to 32.5 million tonnes of sugar, according to the Reuters poll. High global stocks will limit the upside in sugar prices.
"The key to whether we get any sustained upward move will be down to stocks, which to the outside world appear to be high," said Richard Oxley, managing director at Sugaronline.com. "Unlike other commodities, a lot of the stocks are privately held, so no one can be sure what the figure truly is," Oxley said. Another key reason for the expected shift to a sugar deficit was expectations of rising global consumption of the sweetener.
"I expect world demand to grow by 4.2 million tonnes during 2014/15 (October/September)," said Bruno Conte de Lima, analyst with INTL FC Stone. "This might more than offset production increases by some countries." Oxley said the expected deficit in 2014/15 was unlikely to underpin prices for long as output quotas would end in 2017, giving incentives to European producers to raise production. "I believe any rise in prices due to the impending deficit will be very short-lived, especially with the impending quota-free Europe in 2017," Oxley said.
