Sugar reach highest price in 28 years

In commodities, some prices are already higher than the peak of 2008.... May this support our malthusian view of the markets....

Sugar Deficit to Support 28-Year High Price, ISO Says

By Mike Cohen

Sept. 7 (Bloomberg) -- Sugar prices, which reached their highest level in more than 28 years last week, are likely to be supported by a global supply deficit, according to Leonardo Rocha, an economist at the International Sugar Organization.

“Prices may rise slightly, but not by that much,” Rocha said in an interview at the World Sugar Summit in Cape Town today. “There will be some supply response” to the shortfall, he said.

On Sept. 2, the London-based industry body forecast demand for sugar would outstrip supply by 8.4 million metric tons in the year through September 2010. Rocha expects the shortfall to be eliminated the following year.

The ISO expects India, the largest sugar consumer, to import 4.1 million tons of the sweetener in 2009-10, 3 percent more than in the previous year. Consumption in the southeast Asian nation is forecast to rise 3 percent to 23 million tons.

“India is today the biggest driver of the sugar market,” Rocha said. “Production has collapsed significantly” due to poor rainfall, he said.

The ISO expects Brazil, the world’s largest sugar producer, to export 26.1 million tons of sugar in fiscal 2010, a 6.6 percent increase on the previous year. Exports from Thailand are expected to rise 0.9 percent to 5.8 million tons.

Raw sugar futures last week climbed to 24.85 cents a pound, the highest price since February 1981. Sugar has climbed 83 percent this year, heading for its biggest annual gain since 1980, as drought has affected parts of India and excessive rain slowed the harvest in Brazil.

Rocha expects the market for ethanol to remain static this year, because cane growers can earn better returns in the sugar market.

South Africa Constraints

Imports by the European Union may rise 1.5 percent to 4.5 million tons in fiscal 2010, while imports by the U.S. are expected to grow 0.1 percent to 2.5 million tons, the trade group said.

South Africa, Africa’s largest sugar producer, has limited scope to increase production because of shortages of suitable land and water, Johann van der Merwe, the South African Sugar Association’s external affairs director, told the conference.

South Africa produces about 2.5 million tons of sugar a year, about half of which is exported. Brazilian producers control about 10 percent of the South African market, Van der Merwe said.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

Last Updated: September 7, 2009 06:34 EDT