World’s Top Sugar Trader Expects Two Years of Shortages Ahead

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The world’s largest sugar trader expects the global market to face two years of shortages, the most “constructive” backdrop since 2016.

Alvean, a joint venture between Cargill Inc. and Brazilian producer Copersucar SA, expects sugar production to fall short of demand by 5 million metric tons this season, Chief Executive Officer Paulo Roberto de Souza said Monday in a phone interview. That will be followed by another deficit of 6 million tons in 2021-22, he said.

Thailand is having a bad crop, Europe’s output has declined and Brazil is set to make less sugar after a drought last year curbed cane development. All of that will leave the world dependent on sugar from India, where production is rising, though the government approved an export subsidy in December that was smaller than traders expected.

India’s subsidy fueled a rally in New York. Futures climbed 15% last year, the most since 2016, and the first day of trading in 2021 saw gains extend to the highest since May 2017, aided by a weaker dollar.

World’s Top Sugar Trader Expects Two Years of Shortages Ahead

“We are constructive on prices not just because of the macro tailwinds, but also because of fundamentals,” said de Souza, who has led the joint venture since 2019. “The world needs sugar from India.”

Dry weather has left Thailand, normally the second-largest shipper, with a small crop again, he said, and any recovery for next season will likely be limited as some growers have already migrated to other crops.

In Brazil, the top exporter, dry weather and fires have curbed cane development. Output for the harvest that starts in April is expected to drop 4.1% to 580 million tons in the main-growing region of the center south, Alvean forecasts. Sugar output is expected to drop 3 million tons to 35 million.

The sugar market was counting on 6 million tons of Indian exports with a subsidy rate near the previous year’s level of about $140 a ton. India’s announced aid was just about $80 a ton, meaning futures need to be closer to 15 cents, the parity or level at which it becomes profitable for Indian millers to export, Green Pool Commodity Specialists said in a report.

“For India to export, prices have to go up and have to stay up for something like three, four months,” Alvean’s de Souza said. “The market will have to pay up to the Indian export parity.”

World’s Top Sugar Trader Expects Two Years of Shortages Ahead

Sugar prices exceeded 16 cents a pounds on Monday for the first time since 2017. Commodities have been gaining as more investors turn to the asset class and the dollar weakens. Speculators excluding index funds boosted bets on higher sugar prices by more than sixfold last year.

Prices had been in the doldrums for the past three years after the world faced massive surpluses as the European Union boosted output after abolishing quotas that capped production. Output has since declined and it’s unlikely that the bloc will once again seek to be a structural exporter, de Souza said.

The sugar market could still face headwinds from another wave of lockdowns, which could dent consumption, or if funds decide to sell their large long position, de Souza said. On the other hand, a new weather shock or rally in crude oil prices -- which would boost the incentive for Brazilian millers to favor ethanol over sugar -- could push prices higher.

“A constructive market like we see now, we haven’t seen since 2016,” de Souza said.

©2021 Bloomberg L.P.

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