NEW YORK • Sugar stockpiles are poised for a record high as slowing demand growth and surging production create the worst-performing commodity of this year.
Consumers have become increasingly wary of the health impact of their sweet tooth, and companies from canned fruit maker Del Monte Foods to snack food seller Mondelez International are touting products made with less sugar.
While global consumption is still rising, the pace of growth has slowed to an average 1.4 per cent in recent seasons, down from 1.7 per cent over the past decade, according to researcher Green Pool Commodity Specialists.
That is coming at a time of booming production, especially in India, the world's No. 2 producer. Farmers in Thailand are also collecting massive crops.
World stockpiles are set to swell to the highest ever this season and stay near the record next year, said the US Department of Agriculture. Sugar futures in New York have slumped 25 per cent so far this year - the biggest loss on the Bloomberg Commodity Index.
"Unless there's a weather issue, it doesn't look like the bulls have any hope for a sustained rally," said Mr Donald Selkin, a New York-based chief market strategist at Newbridge Securities, which oversees about US$2 billion (S$2.7 billion).
"Everybody is trying to do away with sugar and sugary products. You see that in supermarkets and grocery stores. Demand is going to remain less than what it's been in recent years. The price is doomed to stay low for a while."
Everybody is trying to do away with sugar and sugary products. You see that in supermarkets and grocery stores. Demand is going to remain less than what it's been in recent years. The price is doomed to stay low for a while.
MR DONALD SELKIN, a New York-based chief market strategist at Newbridge Securities.
On Monday, raw sugar for October delivery fell 1 per cent to 11.4 US cents a pound on ICE Futures US.
Global output will top demand by 19.6 million metric tonnes in the 12 months ending Sept 30, the biggest overhang ever, said Australia-based Green Pool last month. The excess would be more than enough to meet annual demand in China, the world's top importer.
After a mammoth crop in India, the Indian Sugar Mills Association last week said processors are seeking to raise export quotas to a record six million tonnes. It estimates India's output at 32 million tonnes, up 58 per cent from a year earlier.
Meanwhile in Brazil, surging ethanol stockpiles and tumbling prices for the biofuel mean cane millers could process more of the crop into sugar.
Of course, crops can still fail, especially if the weather turns worse than expected. Dry conditions have hurt plants in Brazil's centre-south, the world's biggest producing region. The potential for an EL Nino weather pattern later this year could also mean some damage to Asian crops.
But in a market where demand is slowing, small supply shocks can often be absorbed. While health concerns and taxes on sugary drinks that erode consumption have been more pronounced in developing economies, Green Pool said these factors are now being "replicated" in emerging markets.
"All the bearish elements that had sugar pinned down initially are still in place, and some are even worse," said Mr Frank Jenkins, president of JSG Commodities.