The global sugar glut is extending into a third year, the longest stretch in more than a decade, as Brazil and Australia expand output and imports contract to the smallest since 2008.
Production will exceed demand by 5.9 million metric tons in the year that began Oct. 1, more than the U.S. consumes in six months, the International Sugar Organization estimates. Global supply including inventories will be the highest ever, the London-based group says. Raw-sugar futures traded in New York may drop 9.9 percent to 18 cents a pound by the end of the year, according to the median of 15 estimates from traders and analysts compiled by Bloomberg.
Futures fell 45 percent since reaching a three-decade high of 36.08 cents in February 2011 as farmers from Russia to Thailand planted more crops. The drop is moderating global food prices that the United Nations says rose 7.7 percent in the past three months as drought and heat waves wilted U.S. and European wheat, corn and soybeans. Lower prices are helping to cut costs for food companies including Nestle SA, which spent about 1.5 billion Swiss francs ($1.6 billion) last year on sugar.
“The surplus is probably getting worse,” said Jonathan Kingsman, the chief executive officer of Lausanne, Switzerland- based research company Kingsman SA who has traded sugar for more three decades. “More sugar will have to be stockpiled on lack of demand and we would expect prices to stay under pressure.”
Sugar retreated 14 percent to 19.98 cents on the ICE Futures U.S. exchange this year, extending a 27 percent slump in 2011. The Standard & Poor’s GSCI Agriculture index of eight raw materials jumped 11 percent this year and the MSCI All-Country World Index of equities advanced 11 percent. Treasuries returned 2.2 percent, a Bank of America Corp. index shows.
Production will rise 2.3 percent to a record 177.4 million tons this season as demand advances 1.9 percent to 171.5 million tons, according to the ISO, which has more than 80 member states. Output rose 19 percent in the past four years and consumption 6 percent. Supply including inventories will gain 3.7 percent to an all-time high of 240.6 million tons as imports contract 6.5 percent, the ISO says.
Brazil, the biggest grower, will produce 38.1 million tons this season, 11 percent more than a year earlier, the ISO estimates. While Russian supply will be little changed at 5.4 million tons, production is up 53 percent from two years ago, when drought decimated the country’s crop, the ISO estimates.