(Updates price in sixth paragraph.)
July 17 (Bloomberg) -- Sugar production in Thailand will increase to a record in the year from November as farmers in the second-biggest shipper turn to cane from rice, potentially boosting exports of the sweetener, the state forecaster said.
The country may produce 12 million metric tons of raw sugar, crushed from 105 million tons of cane, Somsak Suwattiga, secretary-general of the Office of the Cane & Sugar Board, said in a phone interview, providing the board’s first estimate. That compares 11.29 million tons from 103.67 million tons in the crush that ended on May 9.
More supply from the largest exporter after Brazil may ease a global deficit forecast by Czarnikow Group Ltd., Kingsman SA and Rabobank International. A subsidy program in Thailand that boosted rice output and stockpiles to all-time highs lapsed in February, diminishing returns for farmers in Southeast Asia’s second-largest economy. While Somsak’s prediction matches the outlook from sugar millers, local growers are predicting a drop in the harvest on dry weather.
“Attractive and stable returns from sugar cane are encouraging rice farmers to switch,” Somsak said from Bangkok today. “Increasing supplies of Thai sugar are unlikely to affect global prices as demand in Asia can absorb all the sweetener from Thailand.”
With the quota for domestic consumption set to remain at 2.5 million tons in 2014-2015, Thailand should be able to export about 9.5 million tons next year from 8.8 million tons in 2014, Somsak said.
Raw sugar on ICE Futures U.S. capped a third year of losses in 2013 in the longest run of declines since 1992 as world supplies exceeded demand. Prices climbed 3.3 percent to 16.95 cents a pound this year amid investor concern that dry weather may parch crops from Brazil to Australia. Futures dropped as much as 0.9 percent today to $16.92.
Lack of rain and water across Thailand may hurt yields in the coming year, cutting cane output to 100 million tons and yielding 10.2 million tons of raw sugar, said Naradhip Anantasuk, office manager of the cane-growers federation.
“Drought has spread across 60 percent of the total cane areas, affecting the growth of fresh planted cane and ratoon and reducing sugar content,” Naradhip said by phone yesterday from the province of Kanchanaburi. Cane ratoon is grown from the stubble left behind after a harvest. “Although we will have more rain before crushing starts in November, the cane may not fully grow, driving total output below last year.”
The global market will swing to a deficit in 2014-2015 as supply drops for a second year, Rabobank said in report received July 14. Global raw-sugar output will trail demand by about 900,000 tons in the 12 months from October compared with a glut of 1.4 million tons in 2013-2014, the bank said.
The outlook for the Thai crop is challenging, Rabobank said in the quarterly report. While the end of the rice-subsidy program had encouraged farmers to switch to cane, weather risks remained, including a possible El Nino, it said.
El Ninos can bring drought to the Asia-Pacific region, including Thailand. The odds of a strong event are increasingly unlikely after the tropical Pacific Ocean cooled, Australia’s Bureau of Meteorology said on July 15.
Thai Sugar Millers Corp., which represents 51 millers nationwide, reiterated a forecast for a 12 million ton crop. The monsoon season from this month to September could improve yields, while plantations are poised to expand, said Sirivuthi Siamphakdee, a Bangkok-based spokesman for the group.