by Agrimoney.com
The International Sugar Organization cut to less than 200,000 tonnes its forecast for the world sugar surplus in 2010-11 – but cautioned against this supporting expectations of a further leg up in prices.
The intergovernmental group said that world sugar output would, at 167.8m tonnes, set a record during the season by a lower margin than had been thought, after "cold weather and heavy sleet" last month reduced China's output potential, while last summer's drought had hurt Ukraine's beet crop more than had been expected.
The ISO downgraded its estimate for output in Australia, the third largest exporter, by 700,000 tonnes, citing rainy weather which left significant quantities of cane uncut even before the arrival of Cyclone Yasi, which destroyed an estimated 25% of the north Queensland crop.
However, consumption was proving marginally more buoyant than had been expected, supported largely by growth in India's use which, at 31.4m tonnes, would account for just under 20% of world demand.
Although the world was on course for its first sugar production surplus in three seasons, the excess would, at 196,000 tonnes, come in way below the 1.29m tonnes forecast in November.
"No rebuilding of stocks is foreseen for the current season," the ISO said.
Trade dynamics
The small size of the surplus had increased the potential for low stocks to influence prices, which earlier this month hit their highest for 30 years.
Indeed, the ISO, which had already estimated sugar's stocks-to-use ratio falling to a 20-year low, trimmed its estimate further, to 35.0%. The stocks-to-use ratio is a key measure of the availability of a crop's supply, and therefore of its pricing potential.
However, examination of trade flows raised doubts over whether this extra squeeze in sugar output would instil a further rally in prices, with export availability still expected to exceed import demand, if by less than 190,000 tonnes..
"It has to be stressed that, despite the downward revision introduced for world production, export availability still covers projected import demand," the ISO said.
"The absence of a physical trade deficit may act to cap prices for the rest of 2010-11 season."
Brazil question
Prices may, nonetheless, prove volatile for now, until around June, when more is known about Brazil's 2011-12 crop.
Currently, Brazil's sugar output, which is expected to have grown by 15.4% in the year to the end of April, is expected to show a "further increase" in 2011-12.
Furthermore, speculators' interest in sugar futures "is expected to continue providing support for world prices", the ISO said, adding that the "growing strength of commodity prices in general" represented a further prop.
Managed funds added nearly 3,200 lots to their net long position in sugar in the week to last Tuesday, taking it to a historically high level of 125,000 tonnes, weekly regulatory data on Friday showed.
New York raw sugar for March stood 3.5% higher at 32.62 cents a pound on Monday, with London white sugar for May up 2.0% at $74.00 a tonne.
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