Louis Dreyfus Sees Sugar Surplus Lasting on Currencies, Profits


The global sugar surplus will extend for a fourth year in 2014-15 as cane is still more profitable than other crops and currency devaluations in producing nations help offset price drops, according to Louis Dreyfus Commodities.

Sugar production will outpace consumption by 5 million metric tons in the season that starts Oct. 1 in most countries, Jacques Gillaux, the Geneva-based juice and sugar platform head at the company, said in an interview in Dubai today before the start of the annual Kingsman sugar conference. That compares with excess supplies of 8.5 million tons a year earlier.

“In many countries, because the devaluation of local currencies, cane is still the best thing you can plant,” Gillaux said. “In all fairness, we haven’t had any material weather accident for a long time anywhere. Globally speaking, we still see quite significant surpluses.”

Raw sugar futures in New York fell in the past three years, the longest slump in more than two decades. Brazil’s real depreciated 13 percent against the U.S. dollar last year and the Indian rupee slid 11 percent, partly compensating the world’s top and second-largest producers, which sell their sweetener overseas in the greenback, for lower prices.

Dry Weather

Millers in Brazil’s center south, the nation’s main growing region, may process 600 million to 610 million tons of cane in the 2014-15 season that starts there in April if there are no losses to the crop due to dry weather, according to Dreyfus, which has a controlling stake in Biosev, a Brazilian milling business. Brazil’s southeast got 75 millimeters (3 inches) of rainfall in January, says Somar Meteorologia. That compares with a historical average of 275 millimeters.

“Clearly it’s very dry,” said Gillaux of Dreyfus, which sources 60 percent of its sugar from Brazil. “There’s rain expected for the second half of the month. It definitely needs to come, or we will start talking about losses.”

Sugar prices rose 4.1 percent in the past two weeks on ICE Futures U.S., while arabica coffee soared 18.6 percent, helping to make the beans this year’s best performer in the Standard & Poor’s GSCI gauge of 24 raw materials. Futures gained on speculation dry and hot weather in Brazil would reduce this year’s output for both commodities. Brazil is also the top coffee grower.

`Clear Downtrend’

“The difference in sugar is that we are heading into a fourth year of surpluses, a very clear downtrend in prices, very heavy inventories in different parts of the world and therefore there is a cushion, which has probably tempered the reaction in sugar prices to this dry weather,” Gillaux said. “It reacted a lot less than coffee, for instance.”

Brazil produced 594.7 million tons of sugar cane from April 1 to Jan. 15, when most mills had already ended the season, a record crop, according to data from Sao Paulo-based industry group Unica. If dry weather were to cut processing to 580 million tons or lower, that could take the world’s supply and demand closer to a balance, Gillaux said.

Indian Consumption

Sugar production in India may fall short of consumption next season, particularly if the country approves a subsidy to boost shipments of raw sweetener, according to Dreyfus. While India has carry-in stockpiles of 7 million to 8 million tons, its surplus is “very marginal,” Gillaux said, estimating output in 2013-14 at 24 million tons and consumption at 23.5 million to 23.7 million tons.

“At current prices, it doesn’t even make sense to subsidize this sugar to be exported in the world market,” Gillaux said. “But India has done it before and it could well be that they export sugar with subsidy and this will depress the world prices and we could well see them importing sugar at the end of 2015.”

The global sugar surplus, barring any weather impact, is likely to be felt quicker this year as importing countries have re-stocked, according to Dreyfus, which also trades coffee and orange juice. Imports into China could “easily” fall by a million tons this year while Indonesia, the biggest raw sugar buyer, is also set to slow overseas purchases, said Gillaux. Dreyfus has a sugar refinery in Indonesia and it’s soon to start its Chinese plant, with 500 tons a day capacity.

China, Indonesia

“The surplus to a large extent has moved to destination, China has extremely high stocks and so does Indonesia,” Gillaux said. “The surplus will quickly materialize in Brazil and the price signals should come clearer to the industry and early in the season, so they can turn on to ethanol,” he said, forecasting prices may need to fall to 14 cents a pound from 15.73 cents a pound now and stay there for some time.

Brazil could lose 1.6 million tons of sugar production if the mandated share of ethanol into gasoline were to be raised to 27.5 percent from 25 percent now, Gillaux said. Millers in Brazil use raw material sugar cane to make both the sweetener and the biofuel. Last year, trader’s expectations for a large shift from sugar to ethanol in Brazil didn’t materialize as Chinese and Indonesian buying kept prices from falling to levels that would spur millers to swing, he said.

Dreyfus, which invested in the sugar industry in the past 10 years, will now “take a back seat for a year or two,” Gillaux said. “There’s excess capacity at the moment, so we will have to wait and see how consumption grows to absorb these.”

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