Sugar prices are not set for sharp drop in 2011-12, despite a return to a healthy world production surplus, as countries – notably China – rebuild stocks depleted by successive years of squeezed supplies.
The International Sugar Organisation, in its first official forecast for 2011-12, said sugar production would exceed demand by 4.2m tonnes, the first substantial surplus in four seasons.
While the organisation "radically revised downward" its ideas over Brazil’s contribution, warning that the country’s production problems stemming from low rates of cane replanting would extend into 2012, it forecast a rise in output from India and from Europe’s beet sugar growers.
Indeed, beet sugar will, against the long-running trend, increase its share of total supplies of the sweetener to 21.4%, from less than 20% in 2010-11. In the 1970s, the figure averaged 40%.
Nonetheless, the ISO said it "does not believe the first season of a significant statistical surplus" after long-running tightness "will bring considerable bearish pressure on sugar market values".
"Major downward price corrections would be a surprise."
The depleted level of world sugar inventories meant that, as a proportion of use, they would still only end the season at about 36%.
This figure is "as low as in the deficit season of 2008-09", which ushered in the recent run of high prices – culminating in a 30-year high of 36.08 cents a pound reached in New York’s futures market in February.
For China, where "two years of massive drawdowns have left stocks depleted", a programme of inventory rebuilding was already picking up pace, with July imports of 645,000 tonnes likely to have been repeated last month.
China’s imports are expected to reach 2.75m tonnes in 2011-12, up from and 2.1m tonnes in the current season and 1.84m tonnes in 2009-10.
Further ahead, India, the second-ranked sugar producer, will provide a buffer against falling prices, with its growers likely to show their historic readiness to switch crops should values fall too far.
"Should world prices fall over the coming months, it is very likely that Indian production post-2012 will suffer as a result and the country may enter the downward phase of its sugar production cycle," the ISO said.