Czarnikow sees doubling of world sugar stocks

Published: 06/22/2012, 2:20:24 PM

Sugar bulls pinned hopes on Brazil's ethanol industry swallowing extra cane as Czarnikow forecast a further recovery in supplies for the sweetener, foreseeing a doubling in world inventories over 2012/13, according to Agrimoney.

Czarnikow, in its first forecast for 2012/13, estimated that world sugar production would exceed use by 8.4 million metric tonnes, a second season of strong surplus, after the 7.8 million tonnes seen in 2011/12.

The forecast, "which indicates global stocks could double be the end of next season", would take the market past a landmark - in meaning that "the process of transition to surplus is reaching its end" after successive years of deficit late in the last decade.

And this would have implications for a market in which beet and cane producers have still been enjoying relatively high prices, compared with alternative crops.

"As the supply response builds the pressure will be on producers to carry stock or cut back on marginal production, which the market has yet to clearly signal," the London-based merchant said.

Czarnikow's forecast reflected in particular better hopes for cane harvests in Brazil, the top sugar producer, but also the likes of India and Thailand.

"In fact, it would seem that with sugar production on the rise outside Brazil, many producers may be hoping that Brazil regains its focus on ethanol," which the South America also makes from cane.

The comments came amid growing ideas that Brazil may do just that - with speculation that the government is poised to use elbow room allowed by lower inflation to raise a ceiling on gasoline prices.

Higher energy prices would, in incentivising mills to produce ethanol rather than sugar, underpin values of the sweetener too.

Indeed, it could "provide key support for global sugar prices", Australia & New Zealand Bank analyst Paul Deane said, as long as the government allows ethanol prices to rise at the pump, and not just at the wholesale level, as it did in November.

At Sucden Financial, Nick Penney noted talk of an increase of 10% in ethanol prices.

However, with some reports suggesting that the rise may only be allowed at the wholesale level, Penney curbed hopes for ethanol producers, saying that may "now have to rely more on the reduction/ abolition of ethanol taxes" to boost their fortunes, Penney said.

And even abolishing such taxes "will not go that far in increasing the level at which it becomes more remunerative to produce ethanol rather than sugar", which it estimated at 16.3 cents a pound for raw sugar as of a week ago.