Sugar Shortage May Peak in 3rd Qtr. 2010

In a Bloomberg story 2/9/10, Tropix Capital Management was quoted as saying that the global shortage of sugar may peak in the 3rd quarter. The sugar shortage is responsible for the highest prices in 30 years.

“As we enter the second quarter, we enter the inter-crop period for South Brazil when export supply is minimal,” Sean Diffley, founder of the hedge fund and former head of sugar trading at ED&F Man Holdings Ltd., said by email. “Countries like Russia will return to the market in force. The acutest part of the deficit may not be apparent until the third quarter.”

India, China, Indonesia, Pakistan, Egypt and Russia are among countries planning to buy sugar to reduce domestic prices which is worsening the sugar deficit. The shortfall may be 5 million to 6 million tons this season, according to Tropix.

“The world stocks-to-use ratio should reach 20 year lows in the second half of this year,” said Diffley, who worked for 16 years at ED&F Man, one of the biggest sugar traders

China is the biggest consumer of sugar after India, and is suffering from a crop drought.

Sugar Prices are Expected to Decline Next Year

Sugar output in Brazil, the top producer, may increase by as much as 4.4 million tons to 35.3 million tons in 2010-2011, as growers take advantage of record prices, Plinio Nastari, president of research firm Datagro, said in an interview on Feb. 7 in Dubai. The global sugar market may have a surplus of 1.5 million tons next year, he said. “The forward sugar curve already reflects the assumption that Brazilian production will rebound significantly,” Diffley said. “If we see another rainy harvesting period we may not see the surplus in 2010-11 that analysts are assuming is a given.”

Sugar had its biggest price rise since 1974 when heavy rains and drought pared harvests in Brazil and India, the largest growers. Futures reached 30.4 cents on Feb. 1, the highest since January 1981.