Thailand Gives Sugar Bears More to Cheer as Output Keeps Growing

(Bloomberg) -- Thailand’s expanding sugar output is surprising traders and giving more ammunition to bears betting that a global oversupply will further weigh on prices.

Millers in the world’s No. 2 exporter have already processed about a fifth more cane than a year earlier and the Office of the Cane and Sugar Board says crushing will likely last longer than usual. Thai output will reach a record in the 2017-18 season as farmers expanded plantings and favorable weather improved yields, according to a Bloomberg Survey of 11 traders and analysts.

Bigger output is adding to a global surplus that traders from Alvean to Cofco International Ltd. already forecast will continue for a second year next season. That’s made raw sugar this year’s worst performer in a Bloomberg gauge of 22 commodities, with the sweetener trading near the lowest since 2015 in New York.

“The surprise now is coming in the form of higher-than-anticipated sugarcane acreage and agricultural yields,” Mauro Virgino, the London-based head of sugar research at Tropical Research Services, said by email Wednesday. “Thailand will have a stronger-than-anticipated tail of the harvest.”

Sugar production in Thailand, which is recovering from an El Nino-induced drought, jumped 21 percent to 9.92 million metric tons in the season through March 8, according to Thai Sugar Millers Corp. The processing season started Dec. 1 and will likely last into early May, said Warawan Chitaroon, secretary general at the cane and sugar board. Last year it ended by mid-April.

Thai Supply

The nation will produce 12.6 million tons this season, according to the mean estimate in the Bloomberg survey, which saw responses vary from 12 million to 13.6 million tons. Output will probably rise at least 26 percent to more than 13 million tons, well above the previous record of 11.7 million tons in 2013-14, TRS’s Virgino said.

Favorable weather has boosted yields, especially in north and northeast areas, said Piromsak Sasunee, chief executive officer of Thai Sugar Trading Corp., the nation’s top exporter. Growers have been switching from crops like rice as sugar cane is more profitable, according to the International Sugar Organization in London. The Thai government has also approved new investments in the sector in recent years, it said.

"I strongly suspect that people underestimated cane acreage," said Stephen Geldart, a senior analyst at Czarnikow Group in London. "We know it’s been increasing in the last couple of years as cane took area from rice and tapioca. In 2015-16 and 2016-17 the dry weather hurt cane development, but that didn’t happen this year, so we’ve got a lot of cane."

A recent sugar sale by the Thai government may also mean millers will start to hedge their production against July futures, said John Stansfield, a London-based analyst at Group Sopex. Millers usually wait for the sale to price their sugar as cane costs are based on that.

"Cane is the most attractive crop and yields per hectare are responding to newer higher-yielding varieties," said Stansfield. "The key point is that the expanded acreage guarantees a big crop in 2018-19 as well."

To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net, Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin, Alex Devine

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