The price of raw sugar in New York fell to as little as 11.35 US cents per pound yesterday, the lowest level for a most-active contract since January 2009. Five years of market surpluses have caused sugar availability to soar and prices to tumble. In each of the last four years, the year-end price was lower than it had been at the start of the year. Thailand is attempting to place considerable quantities of sugar from its sharply risen stocks onto the market. Meanwhile, India is increasing its supply of white sugar because sugar mills require liquidity in order to pay the sugar cane producers. All the same, the extent of the price weakness is surprising – after all, there is now widespread consensus that surpluses on the sugar market should be a thing of the past. The International Sugar Organization (ISO) is predicting a deficit of 2.5 million tons for 2015/16, notes Commerzbank. Most forecasts envisage Brazilian sugar production being lower once again in 2015/16 than last year, and the dry conditions in Thailand are also likely to see the sugar cane crop fall significantly short of the previous year’s harvest. The ISO even envisages the deficit rising to 6.2 million tons in 2016/17 as demand for sugar continues to grow while ethanol production consumes an ever larger proportion of the sugar cane. The prospect of market deficits in 2015/16 and the subsequent years is in fact lending support to prices – but only in contracts with longer dated maturities, adds Commerzbank.
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