Sugar is attempting to break out of its prolonged bear market. Raw sugar futures stood recently at 18.28 cents per pound, up from a low of 14.7 cents early this year. Even so, the current price is only half of what it was in early 2011.
Global production of the sweetener is set to fall short of consumption in 2015, snapping four consecutive years of oversupply, largely due to falling output in top exporter Brazil.
The supply concerns are driving sugar prices higher. Raw-sugar futures rose 4.1% last week, the biggest weekly percentage gain in almost two months. The July contract, which is the most actively traded, ended the week at 17.91 cents a pound on the ICE Futures U.S. exchange.
Sugar production in Brazil’s Center South, the largest producing region, is poised to drop 3.2 percent this year after drought ravaged cane crops. Damages to Indian and Thai sugar-cane crops if El Nino brings dryness to Asia’s main producing nations will drive prices to the highest since March 2012, according to Harcourt Investment Consulting AG.
The countries may see below-normal rains during the monsoon, which provides most of the year’s rainfall, amid rising odds of an El Nino, a weather pattern caused by the periodic warming of the tropical Pacific Ocean, national weather forecasters warned in the past month. Australia’s Bureau of Meteorology put the chances of an El Nino this year at more than 70 percent.
El Nino can roil agricultural markets worldwide as farmers in South America contend with too much rain, while those in parts of Asia and Australia struggle with drier-than-normal weather. About a 20 percent probability of a strong El Nino is reflected in soft-commodity markets, compared with the 60 percent to 70 percent odds seen by meteorologists, analysts led by Ephrem Ravi, an analyst at Barclays Plc. wrote in report May 8.
Paulo Roberto Souza, the president and chief executive officer of Copersucar, also expects that that the arrival of El Nino would spur more crop losses. Prices will also rally as more of the cane crop is used to make ethanol, rather than sweetener, pushing futures above 20 cents, he said.
Plinio Nastari, president of Brazilian consulting firm Datagro, said mills are likely to produce 36.4 million metric tons of sugar by the end of the harvest, 2.9% less than in the previous year.
“The current outlook is highly dependent on how the weather develops with the increasing probability for El Nino,” Manne Rasmussen, a commodities trading analyst who helps oversee about $626 million at Harcourt in Zurich, said by e-mail in response to questions today. “The continuation of a really bullish market would be on the back of problems with the Indian and Thai crops.”