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Unprecedented Sugar Glut Sweeps Across the Globe

Published on Mar 18 2015 6:54 AM in Supply Chain tagged: Featured Post / Trending Posts / Sugar

Unprecedented Sugar Glut Sweeps Across the Globe

Just as cane harvests expand in India and Thailand, farmers in Brazil, the world’s largest producer, are ramping up exports to take advantage of a tumble in the exchange rate that has swelled their profit margins. And crops that were hurt by drought last year have been revived by rain.

Global output is set to exceed demand for a fifth straight year, leaving the biggest stockpiles on record, the International Sugar Organization said.

All of that sugar signals global prices, already down 50 per cent in three years, are poised to fall further, cutting costs for buyers like Krispy Kreme Donuts and Mondelez International, the maker of Cadbury chocolates and Oreos. New York sugar futures probably will slide 6.2 per cent by July to 12.02 cents a pound, the lowest since January 2009, a Bloomberg survey of nine analysts showed.

Global production in the year ending 30 September will exceed demand by 620,000 metric tons, leaving record stockpiles of 79.89 million tons, or almost enough to supply the world’s top seven consuming countries. India, the second-largest producer, will have the biggest harvest in three years at 26 million tons, a Bloomberg survey showed. A Thai industry group estimated cane output rose 6.1 per cent this season.

Supply Shift

Two decades of uninterrupted consumption growth and four years of slumping prices may leave less supply than forecast. In Europe, people ate on average 37.1 kilograms (81.8 pounds) of sugar in 2013, up from 35.1 kilos in 2011, while Americans consumed 32.5 kilos, up from 31 kilos, the sugar organization estimates. The global average is 23 kilos.

“By the end of June, the market will be shifting from surplus to a more balanced, small-deficit situation,” which should boost prices, said Bruno Lima, a risk-management consultant for INTL FCStone in Campinas, Brazil. “China has been and should continue to be a hungry buyer.”

The government of Brazil, where half the cane harvest is used to make ethanol for cars, mandated increased use of the fuel, leaving less to make sugar.

US Limits

Food makers may not see much benefit in the U.S., where the government limits sugar imports. Domestic futures, which trade at a premium to the world price, are up 9.7 percent from a year ago. Mondelez raised prices to cover higher costs for cocoa, milk and sugar.

While sugar was “modestly favourable for us” in 2014, the benefit was “overwhelmingly offset” by cocoa, dairy and packaging costs, Michael Mitchell, a Mondelez spokesman, said in a 16 March e-mail.

More sugar is on the way. India, the second-largest producer, has approved subsidies for exports of as much as 1.4 million tons of raw sugar to help mills pay debt to farmers. Maharashtra, the top producing state, is seeking approval for additional aid to ship product abroad.

Bloomberg News, edited by ESM


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