Sugar Market to Have Supply Shortfall for Two Seasons

by Dave

Bloomberg.com

Global sugar demand will outpace supply for two seasons as Indian and European production declines and consumption rises, the International Sugar Organization said.

The ISO in August forecast a decline in output to 161.6 million metric tons in the year to September 2009 and consumption of 165.5 million tons. While slower global economic growth will curb demand, there will still be a supply deficit, according to Leonardo Bichara, an economist at the ISO. The shortfall will widen in the 2009-2010 season, he said today.

Sugar is the second-best performer on the UBS Bloomberg CMCI Index this year on expectations of lower output. Raw sugar in New York has climbed 17 percent, while refined sugar traded in London has advanced 13 percent. Both types of the sweetener declined in each of the previous two years as supply outstripped demand.

Brazil, the world’s biggest exporter of sugar, may scale back its ethanol production growth to help plug the supply shortfall, Bichara said.

“We expect Brazil to expand production to cover part of this increasing demand, so instead of having a 6.5 million-ton deficit, which you would have if production would remain fixed, the deficit will be about 4.5 million tons” in 2009-2010, Bichara said.

Brazilian Ethanol

In recent years, Brazil has expanded its production of sugarcane by about 50 million tons, “the vast bulk” of which went to ethanol, he said.

“What this means is that probably Brazilian exports of ethanol will not grow next year,” Bichara said. “Brazil will struggle with ethanol exports for the next year or even two.”

The Brazilian Sugar and Ethanol Association, known as Unica, said yesterday that new mills coming on line are primarily designed to initially make only ethanol.

In India, the world’s biggest sugar consumer and the second- largest producer, output may not rebound until 2010-11, he said.

The country’s harvest may drop to 20 million tons in the year through September 2009, according to the Indian Sugar Mills Association, less than its forecast in August of 22 million tons.

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