Sugar price sours amid Thai and Indian oversupply

Global sugar prices will come under pressure as returns from Thai and Indian harvests are showing a huge oversupply, according to Rabobank analysis.

The bank’s second-quarter report noted that US buyers had already cut their prices in anticipation of the excess global sugar supply. New York raw sugar futures have been under pressure in recent months, falling from 24.9c per lb in the first week of March to 19.8c per lb by the final week of May.

“This has been driven by a combination of factors,” said report authors Andy Duff and Rafael Barbosa. “The progress of key harvests in India and Thailand has added to the certainty of a substantial surplus in the current 2011/12 (October/September) international crop year, while preliminary projections suggest that another surplus is on the cards for 2012/2013.”

The analysts also note the impact of the oversupply is evident in South America, putting prices under pressure: “Although a significant part of the new harvest in centre/south Brazil falls in the 2011/12 international crop year, even if the region’s production were at the lower limit of the current range of expectations, we estimate that, at most, it would reduce the estimated global surplus for 2011/12 by some 2m tonnes from the current projection of 8.1m tonnes.

“The new centre/south harvest has begun amid considerable volatility in terms of climatic conditions as well as in financial markets, which has done little to clarify this season’s prospects. Despite the recent decline in value of the Brazilian real, the decline in world sugar prices this quarter has meant that, for Brazil’s millers, sugar is currently only marginally more remunerative than ethanol.”