Sugar Prices mid 2011 Drop as Europe Increase Supply

Sugar prices may drop at least 13 percent by early next year as an increase in supplies fromEuropeandAsiacounter a drop in production inBrazil, according to broker and researcher Kingsman SA.

Sugar futures reached a six-month high last week on concern that cane production inBrazilwill drop for the first time in six years because of adverse weather, paring global surplus. Raw sugar for October delivery fell 0.27 cent, or 0.9 percent, to settle at 29.62 cents a pound today on ICE Futures U.S. inNew York.

China, the biggest sugar consumer afterIndia, may buy as much as 2.5 million tons in 2012, up from an estimated 2.3 million tons this year, Kingsman said.

The March-delivery contract may drop below 25 cents a pound on ICE Futures U.S. in New York starting January, Managing Director Jonathan Kingsman, said in a phone interview from Lausanne, Switzerland, yesterday. The contract traded 1 percent lower at 28.69 cents a pound at5 p.m.in Mumbai.

A drop in prices of the sweetener, used in everything from cereals to candy, may help cap global food costs tracked by the United Nations that advanced to a record in February. Kingsman joins Rabobank International and Goldman Sachs Group Inc. in predicting lower sugar prices, citing increased supplies. Goldman Sachs forecasts the price may fall to 20 cents a pound in 12 months, it said in an Aug. 11 report.

?We would expect prices to ease but not fall dramatically on higher global production,? Kingsman said. ?The surplus will mainly be in white sugar next year.?

Production gains inRussia, the European Union,ThailandandIndiamay help the global sugar surplus to reach 9.5 million metric tons in the 2011-2012 season, Rabobank International said on Aug. 24. The surplus may be used to replenish global inventory, it said. It may take two years to rebuild stockpiles pared by a 15 million-ton deficit left by smaller crops in 2008-2009 and 2009-2010, Sergey Gudoshnikov, senior economist at the International Sugar Organization said on July 26.

?We expect that high prices should give an incentive to increase acreage of sugar beet and sugar cane on a worldwide basis,? Michaela Kuhl, an analyst at Commerzbank AG, said by phone fromFrankfurttoday. ?We don?t think prices will stay at the current levels. We think they will come down a little bit.?

Commerzbank expects futures to average about 25 cents in 2012, she said.

Brazil?s sugar cane production in the Center South, the world?s biggest producing region, will be 498 million tons in the 2011-2012 season, down from 525 million tons estimated in July after last year?s drought and heavy rains this year, Kingsman said Aug. 26. Sugar output will be 30.63 million tons, less than the 31.87 million forecast earlier, and down from 33.5 million tons last season, Kingsman said.

Poor Weather

?Weather has been quite poor inBraziland they haven?t been able to get on with their planting,? Kingsman said. ?They haven?t been able to plant as much new cane they would have liked. So we don?t expect Brazilian production to start picking up again until 2013.?

The sugar output inIndia, the world?s second-biggest producer, may climb 7.4 percent to 26 million tons in the year starting Oct. 1, from 24.2 million tons this year, Kingsman said. Exports may total 3 million tons to 4 million tons during the 12-month period, he said.

?Indian exports will have to fill in the gap left by theBrazilshortfall,? he said. ?This is fairly a unique opportunity forIndiaas it will be in a surplus when the world actually needs sugar,? said.