London: Sugar supply will just cover demand this year and prices will fall by the end of 2011, a Reuters poll showed, although that fine balance could easily be upset by dire weather or logjams at Brazilian ports.
Adverse weather in several key producers, which has pushed sugar prices near 30-year highs, eroded the median forecast in the biannual Reuters poll of 20 analysts from a 4.5 million tonne surplus in the previous July poll.
“The market is teetering between deficit and surplus,” said Keith Flury, a senior commodity analyst at Rabobank in London.
Analysts said raw sugar and white sugar futures are likely to rise in the first quarter before Brazil’s next crop and then fall as farmers increase planting to benefit from those prices.
The latest estimates still came in much higher than the forecasts in the previous poll.
ICE March raw sugar futures, which touched a 30-year peak of 34.77 cents a lb on 29 December, were up 0.12 cent at 31.96 cents a lb on Wednesday.
The poll indicated they will rise to 34.40 cents a lb at the end of the first quarter and then fall to 25.25 cents at the end of 2011. The previous poll predicted an average of 15.38 cents a lb for the year.
The big question mark is the weather after detrimental conditions hit key producers such as Russia, Brazil and Australia in recent months.
“We expect the weather to once again dominate the market in 2011 -- especially the speed at which the La Nina phenomenon dissipates,” said Jonathan Kingsman, managing director of Lausanne-based sugar and ethanol consultancy Kingsman SA.
“At number two on the list we would put fears of food inflation and the way that governments respond in terms of export bans, tariff reduction etc.”
Gary Mead, an analyst with VM Group, said, “Sufficient supply will be a concern for much of this year. This may enforce some demand rationing if international prices rise significantly.”
Liffe March white sugar futures were down $1.00 or 0.1% at $780.50 per tonne on Wednesday.
They were forecast to rise to $800 a tonne at the end of the first quarter and fall to $640 a tonne at the end of 2011. In the previous poll, they were seen averaging $495 per tonne in 2011.
India, the second-biggest sugar producer after Brazil, will play a pivotal role. Global supplies and trade flows will depend largely on the size of its crop, which was hard to predict.
A large crop would mean India is more likely to export so-called “open general licence” (OGL) sugar, increasing supplies on the international market and depressing prices.
“The dilemma for the Indian government is -- what if this year’s monsoon is poor?” Mead said.
“Then it could go into the 2011/12 season with extremely low stocks. I see the government fending off pressures from the local sugar millers to permit OGL exports for some time to come.”
Most analysts said they expected that Brazilian ports would come under strain again but that recent investments should mean that delays in loadings should not be as bad as last year’s.
“Investments in rail and new terminals should bring some relief in 2011,” said Plinio Nastari, president of Brazil’s Datagro sugar consultancy.
Sergey Gudoshnikov, a senior economist at the International Sugar Organization, said, “Brazil will remain the dominant supplier of raw sugar, so any hiccups in logistics will be a factor.”
Rabobank’s Flury said, “Short-term bottlenecks certainly could support values.”