Dubai: Runaway sugar prices amid global food price spikes could stabilise throughout 2011 if world supply catches up with an early surge in global demand.
However, any flattening of volatile sugar prices will only happen if producers can recover from the string of weather disasters in recent years that have crippled sugar cane production in some corners of the globe.
Jamal Al Ghurair, managing director of Al Khaleej Sugar in Dubai, said in his opening remarks at the seventh annual Kingsman Dubai Sugar Conference yesterday that he hoped the global sugar industry moves in a "better direction" in 2011.
Al Ghurair oversees the largest standalone sugar refinery in the world which produces 1.5 million metric tonnes of white sugar annually from its Jebel Ali facility opened in 1995.
Jonathon Kingsman, chairman of Kingsman SA trading and analysis firm, told 500 delegates at the Ritz-Carlton at DIFC that according to best predictions, global supply may increase later this year.
"We're expecting a small surplus of six million [metric] tonnes," Kingsman said in his address, later adding that "overall, the year is close to balanced".
30-year high
Sugar prices more than doubled last year and on February 3, raw sugar prices shot to a 30-plus year high of 36.08 cents per pound on the ICE Futures market in New York.
The spike followed hundreds of million of dollars in estimated losses by Australian sugar cane producers hit by tropical cyclone Yasi on February 2.
According to market figures analysed by Kingsman, demand is outstripping supply in the first quarter of 2011 but new supply should reverse the trend in the third quarter, he said.
Kingsman said predictions for the year ahead by analysts were mixed, noting that determining the path of sugar prices in the months ahead may be extremely difficult given that the old supply-and-demand methods of gauging the market were no longer the only factors.
Bad weather's devastation of crops now plays a huge role in sugar prices.
The El Nino-La Nina-Southern Oscillation, a cyclical weather shift over the Pacific in the Southern Hemisphere, is being blamed for everything from floods in Australia to droughts in China.
The change in weather has hit sugar cane production hard.
With worldwide stockpiles of sugar dwindling, Kingsman said that in coming months if "weather misbehaves, there is no room to manoeuvre and prices could explode. We have to keep an eye on the weather but it's a very delicate situation".
A casino
"This really is a game of snakes and ladders where the sugar market is becoming a casino," he said.
Alan Winney, chairman of Queensland Sugar Limited, said the days of the family farm are giving way to multi-origin entities that are so big from production to shipping that economy of scale "allows them to reduce weather risk".
"The family farm certainly in some parts of the world is starting to decline," Winney told delegates, noting that the new evolution of supply chain was moving away from local companies to global companies. Winney said that to compete in highly complex sugar markets, the "future is about partnerships and alliances".
James Cassidy, head of the sugar trading desk of Newedge in New York, said some in the sugar industry were complaining that high-speed computer pricing was leading to volatility in commodities.
