Reuters: Czarnikow said it had changed its forecast for the 2010/2011 sugar market, predicting a third consecutive global deficit, with the shortfall at 2.8 million tonnes in the year.
The London-based sugar merchant had previously seen a balanced sugar market in 2010/11, while the International Sugar Organization and F.O. Licht both projected small global surpluses earlier this month.
“The 2010/11 balance has swung into deficit ... it has become apparent that many producers will fail to reach production targets,” Czarnikow said in a monthly market review last week.
“Hot dry weather during the summer damaged the development of the Russian beet crop, while agricultural yields have also been affected in the Brazilian and South African sugar industries by extensive periods of dry weather,” it added.
Czarnikow also said wet weather in Indonesia and Australia had made harvesting difficult and reduced sucrose yields.
Global sugar production was seen rising to 168.43 million tonnes in 2010/11, up from 157.36 million in the prior season.
“Though we see the 10/11 season in deficit, production is still forecast to deliver significant growth,” Czarnikow said.
“However, we have revised down our growth forecast to 11.1 mtrv (million tonnes raw value), from a previous forecast of 14.8 million in August and 17.4 million in May.”
The rise in production was seen reducing the deficit, which for 2009/10 was 10.5 million tonnes and for the prior season an even larger 15.2 million.
“This (a third deficit) is likely to manifest itself in underlying tensions within the physical sugar market, expressed in cash premiums as well as sharply backwardated futures structure,” Czarnikow said.
“The growth in global production continues to be led by the cane-producing countries, in particular Brazil and India.”
Czarnikow saw production in Brazil rising to 41.0 million tonnes from 35.7 million and output in India climbing to 27.0 million from 20.8 million.
“Harvesting has only just begun in Uttar Pradesh, and while there are real concerns that cane yields will be lower than initially hoped following wet and windy weather, we believe that it is too early to make a clear decision at this stage.
“In addition, prospects in some of the smaller states are looking better, which is a mitigating factor,” the sugar merchant said.
Raw sugar futures on ICE SBc1 rose to a peak of 33.39 cents a lb on Nov. 11, the highest level for the front-month contract in more than 30 years, before suffering a steep setback linked to concerns about the global economic outlook.
“Though the sugar futures market has fallen ... the underlying fundamental trends have strengthened, which suggests that the fall in prices is a function of the unprecedented rise in volatility and global macro risks as opposed to being a sugar-related event,” Czarnikow said.
Front-month March was trading around 28.40 cents a lb on Monday, about 15 percent below its recent peak.