WORLD – The world has never been so awash in sugar. Just as cane harvests expand in India and Thailand, farmers in Brazil, the world’s largest producer, are ramping up exports to take advantage of a tumble in the exchange rate that has swelled their profit margins.

And crops that were hurt by drought last year have been revived by rain. Global output is set to exceed demand for a fifth straight year, leaving the biggest stockpiles on record, the International Sugar Organisation said.

All of that sugar signals global prices, already down 51% in three years, are poised to fall further, cutting costs for buyers like Krispy Kreme Donuts and Mondelez International, the maker of Cadbury chocolates and Oreos. New York sugar futures probably will slide 6.8% by July to 12.02 US cents a pound, the lowest since January 2009, a Bloomberg survey of nine analysts showed.

“The fundamentals are absolutely bearish,” said Donald Selkin, who helps manage about $3bn of assets at National Securities in New York. “Supplies are very extensive. The good growing season and the weak currency in Brazil are also making their exports more attractive.”

Raw sugar for May delivery has tumbled 11% this year to 12.9c on ICE Futures US in New York as of Monday, among the biggest declines of the 22 raw materials tracked by the Bloomberg Commodity Index.

Global output in the year ending September 30 will exceed demand by 620,000 metric tonnes, leaving record stockpiles of 79.89-million tonnes, or almost enough to supply the world’s top seven consuming countries, data from the London-based sugar organisation show. India, the second-largest producer, will have the biggest harvest in three years at 26-million tonnes, a Bloomberg survey showed.

A Thai industry group estimated output rose 6.1% this season.

In Brazil, which supplies one-fifth of the world’s sugar, the incentive to sell more overseas has increased in the past few months, as budget deficits and a stalled economy sent the real plunging to the lowest in almost 11 years against the dollar.

In the week ended March 11, domestic cargoes waiting to be shipped increased 33% from a week earlier, according to Brazil-based Williams Servicos Maritimos.

Two decades of uninterrupted consumption growth and four years of slumping prices may leave less supply than forecast.

In Europe, people ate on average 37.1kg of sugar in 2013, up from 35.1kg in 2011, while Americans consumed 32.5kg, up from 31kg, the organisation estimates. The global average is 23kg.

Rather than expanding reserves, the world will see a production deficit in the current season of 2-million tonnes, widening to 4-million next year, Societe Generale said. “China has been and should continue to be a hungry buyer.”

The government of Brazil, where half the cane harvest is used to make ethanol for cars, increased use of the fuel, leaving less to make sugar. Vehicles must use fuel with 27% ethanol, up from 25%, Energy Minister Eduardo Braga said on March 4.

Food makers may not see much benefit in the US, where the government limits sugar imports. Domestic futures, which trade at a premium to the world price, are up 8.9% from a year ago. Mondelez raised prices to cover higher costs for cocoa, milk and sugar.

While sugar was “mostly favourable for us” last year, the benefit was “overwhelmingly offset” by cocoa, dairy and packaging costs, said Michael Mitchell, a Mondelez spokesman.

The trend for commodities is down, including a plunge in crude oil that has increased the risk of deflation from Japan to China to the European Union.

With rising agricultural output, global food costs tracked by the United Nations are the lowest in four years, including a sugar index that last month was the lowest since 2009.- Bloomberg

March 24, 2015;