Sugar futures were on course for their highest close in nearly 16 months Friday as a supply shortfall caused by El Niño made its presence felt.
New York traded sugar futures rose for a fourth straight session, climbing 0.5% higher at 16.07 U.S. cents per pound in late afternoon trade in London, on course for their first close above 16 cents since Nov. 21 2014.
“People have been focusing on the fundamental outlook, looking at the Thai crop and the Indian crop,” said John Stansfield, an analyst for soft commodities trading house Group Sopex.
Reduced expectations for the Asian sugar harvest have led analysts to hike their forecast for this year’s global sugar shortfall. On Monday Rabobank said consumption will exceed production by 6.8 million metric tons in 2015-16, 2.1 million tons more than its previous forecast. The deficit comes after five years of production surpluses.
The situation is particularly pressing in Thailand. Last month, Thai Sugar Millers Corp. said Thailand’s farmers would harvest below 100 million tons of cane this year for the first time since 2011-12. But Thailand’s sugar mills have begun to stop crushing sugar cane much earlier than usual, pointing to a smaller-than-expected harvest. Traders are now braced for a harvest as small as 96 million tons, Mr. Stansfield said.
Between March 6 and March 17, the daily volume of cane being processed in Thailand’s mills dropped by 45% from 820,000 tons to 450,000 tons, according to trade estimates. By contrast, on March 17 2015 mills were crushing 720,000 tons a day.
Thailand is the second-largest sugar exporter after Brazil, shipping eight million metric tons in 2014-15 according to the USDA. With less Thai sugar available, the sugar price has risen to coax more sugar out of from India, where domestic prices are higher than those on the world market due to government subsidies paid to producers.
India will export 1.9 million-2 million tons of sugar this year, the Indian Sugar Mills Association said Friday. But dipping into India’s stockpiles of sugar will be felt in 2016-17, which is also expected to see sugar consumption outweigh supply.
“The market is going up to find the additional supply from India but that is making the situation worse down the line,” Mr. Stansfield said.
The market has also been supported by a stronger currency in key producer Brazil as pressure continued to mount on President Dilma Rousseff. The currency was up 0.2% against the dollar at $0.2765 in afternoon trade.
“The markets were almost voting for change,” said Tom Kujawa, co-head of softs at trade house Sucden.
“There seems to be a lot of conjecture on the relevance to the sugar price action but overall it would seem more likely to favor the sugar bulls in the short term.”
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