Sugar Surplus May Fall by 1 Million Tons on Brazil

The world sugar surplus may be 1 million metric tons smaller than estimated in the coming season because of a supply shortfall in Brazil, according to the International Sugar Organization.

The ISO in May initially predicted production would outpace demand by more than 3 million tons in the 2011-12 season starting in October. Sugar output in Brazil’s main producing region will fall for the first time in six years in the season, industry group Unica said yesterday. The country is the world’s largest producer of the sweetener.

“Lower production in Brazil in 2011-12 and a forecast for reduced output in 2012-13 may lead the surplus to shrink by as much as 1 million tons,” Leonardo Bichara, a senior economist at the ISO, said by phone today from London.

The organization slashed its estimate for total Brazilian sugar production in 2011-12 to 38.5 million tons from about 40 million tons, Bichara said. Output in the following season will come to 42 million tons, 2 million tons less than predicted previously, he said.

“World stocks will continue to be low and prices are unlikely to fall below 20 cents a pound, which is the cost of production in Brazil,” he said.

Raw sugar for October delivery was recently down 0.94 cent, or 3.1 percent, at 29.30 cents a pound on ICE Futures U.S. in New York. At yesterday’s close, prices had climbed 24 percent in a month on concern production in Brazil would be lower than first estimated.

The surplus for the current 2010-11 season may still increase on higher output estimates for Thailand, the second- largest sugar exporter, and weaker growth in usage, according to Bichara.

“Consumption growth is likely to be reduced to 1.5 percent in 2010-11 from the 2 percent initially forecast,” he said. “High prices could also dent demand in 2011-12.”

source: bloomberg