LONDON—Sugar consumption is set to exceed supply for the first time in six years in 2016, but a lengthy period of overproduction has built up a glut of 83 million metric tons that could keep prices low for years.
The International Sugar Organization said Thursday that demand will outstrip supply by 2.5 million metric tons next season, which begins this October and ends the following September.
But the size of the global backlog, sat in warehouses from São Paulo to Antwerp, means a shortage of physical sugar is unlikely even if a falloff in production occurs, the London-based organization added.
"A statistical deficit of the projected magnitude will not provide significant relief to the huge stocks accumulated over the past five seasons," the ISO said in its report.
Five years of excess production have added 25 million tons to global stockpiles, which the agency estimates will total almost 86 million tons by the end of September.
Higher prices have encouraged the expansion of the sugar crop, resulting in larger harvests that have pushed supplies higher. Subsidies in many producing countries have also encouraged producers to keep up the harvests.
Even after a year of people consuming more sugar than farmers are harvesting, that backlog will still total an estimated 83.4 million tons in October 2016, the ISO predicts.
Underscoring the size of the sugar mountain, the entire European Union is expected to consume 18.6 million tons of sugar during the 2015-16 season, in cakes, sodas and other snacks.
The ISO said it expects Brazil and India—the world's two largest sugar producers—to continue to drive the market. Next year, these two states will produce 63 million tons of sugar, nearly a third of global production.
Increased Indian sugar shipments could turn the country into a major exporter, the organization said.
The long-standing glut, combined with a fall in the Brazilian real, has pushed the price of raw sugar to around 10.52 cents per pound, from around 30 cents during its recent peak in early 2011. Sugar is currently trading near lows not seen since mid-2008.
The weakening of Brazil's currency against the dollar has put pressure on sugar prices, as the commodity is priced in dollars. The low price of sugar has encouraged Brazilian farmers and mills to convert cane to ethanol rather than sugar, but the redirection has still not reduced the global surplus.
The ISO said it expects a 3.368 million ton surplus in the 2014/2015 season, which ends this September.
Source: www.nasdaq.com