The global sugar surplus will be 23 percent smaller than forecast as millers in leading producer Brazil direct more cane to making ethanol at the expense of the sweetener, according to Green Pool Commodity Specialists Pty.
Sugar supplies will be 2.89 million metric tons higher than consumption, the Brisbane, Australia-based researcher said in its second estimate for the 2013-14 season that starts in most countries in October. That compares with a previous forecast of 3.75 million tons and excess supplies of 8.99 million tons in 2012-13.
Millers in Brazil's center south, the main growing region, will direct 45.2 percent of the cane harvested to making sugar, down from a previous estimate of 47.6 percent and last year's 49.4 percent.
"Ethanol obviously pays more than sugar, and it is usually paid for more promptly than is sugar," said Tom McNeill, a director at the company. "While there is some price pressure from stronger supply, we expect that consumption will kick in strongly for hydrous ethanol at the pump, and steady prices."
The price of hydrous ethanol, the pure biofuel used in flex-fuel cars in Brazil, is about 16.50 cents a pound, according to Green Pool. That's 1.3 percent more than raw sugar futures for July delivery traded on ICE Futures U.S. in New York. Sugar production in the center south will be 34.5 million tons, Green Pool estimates. That compares with a previous estimate of 35.8 million tons and last year's 34.2 million tons.
Global sugar production will fall to 177.7 million tons in 2013-14 from 181.8 million tons a year earlier as output drops in countries including India, the world's second biggest grower, and Mexico, the company forecasts. Consumption will rise to 173.8 million tons in the 12-months started in April from 170.8 million tons a year earlier.