Sugar output may exceed demand for a second year as production advances in Thailand, China and the European Union, more than quadrupling the projected global surplus and driving prices lower, according to Kingsman SA. The raw-sugar surplus will widen in 2011-2012 to 10.575 million metric tons from an estimated 2.445 million tons this year, Jonathan Kingsman, managing director of the Lausanne, Switzerland-based broker, said at a conference in Singapore today. Kingsman has traded the commodity for more than three decades and predicted the end of a sugar rally in February. Kingsman’s 2011-2012 forecast is a surprise and would be the biggest surplus since 2006-2007, said John Stansfield, a senior analyst at Olam International Ltd. (OLAM) If correct, it would be “very bearish,” and sugar may drop to less than 20 cents, he said. Olam trades farm commodities including sugar. Sugar has been the worst performer this year of the 24 commodities on the Standard & Poor’s GSCI Index on prospects for higher supply. Lower sugar costs may benefit users such as Coca- Cola Hellenic Bottling Co. SA and Nestle SA (NESN), while easing record food prices, benefiting the world’s poorest. Sugar futures on ICE Futures U.S. in New York have plunged 42 percent from a three-decade high of 36.08 cents a pound, set on Feb. 2, on forecasts for increased output from Brazil and Thailand, the two biggest shippers. The July-delivery contract dropped 0.9 percent to 20.76 cents at 5:51 p.m. Singapore time. ‘Sugar World’ “In the past three months the sugar world has been surprised by the production” from Thailand, Kingsman said, according to an advance copy of his remarks. Prices may decline through to October, Kingsman said in his address. Global food prices surged to a record in February as grains, sugar and cooking oils jumped, according to the United Nations Food & Agriculture Organization. The group’s World Food Price Index dropped in March, with lower sugar the biggest contributor to the fall, before rebounding 0.5 percent last month. Coca-Cola Hellenic, the world’s second-biggest Coke drinks bottler, reported on May 10 its first quarterly loss since December 2008 after costs of raw materials, including sugar, rose in the first quarter. Cheaper sugar will give Coca-Cola Hellenic “a different cycle next year,” Robert Murray, chief financial officer at the Athens, Greece-based company, said on a conference call on May 10. Sugar accounts for 12 percent of the cost of goods sold. Nestle’s Costs Cheaper sugar may also help to contain costs for Vevey, Switzerland-based Nestle, the world’s largest food company, which has estimated its raw-materials bill will rise by as much as $3 billion this year, the biggest gain ever. The company, whose candy brands include Smarties, spends about 1.5 billion Swiss francs ($1.69 billion) a year on sugar, according to Millicent Molete, a spokeswoman. Sugar futures will average 24 cents per pound in 2011, about 15 percent lower than the average so far this year, before rebounding to 25 cents next year, Abah Ofon, an analyst at Standard Chartered Plc, said in an interview on May 10. Prices will decline as the market heads for another surplus in the season from October after output exceeds demand by about 1 million tons in the year that ends Sept. 30, Ofon said, without giving a surplus forecast for the next season. Ofon’s estimate for the 2010-2011 surplus matches that from the International Sugar Organization, which raised its outlook on May 5 from a surplus of 200,000 tons in February. Thai Output Cane output in Thailand, the second-largest exporter, may climb to a record 94 million tons in the season to Oct. 31, with sugar production of 9.6 million tons, Prasert Tapaneeyangkul, secretary-general of the country’s Office of the Cane & Sugar Board, said yesterday. Next season’s cane harvest may match this year’s if there’s no drought or heavy rains, Prasert said. Output from Maharashtra state, India’s biggest producer, will reach a record 9.15 million tons in the year to Sept. 30, Prakash Naiknavare, managing director of the Maharashtra State Cooperative Sugar Factories Federation Ltd., said May 10. Sugar output in India may expand to 25.7 million tons in the 2011-2012 season, from an estimated 24.12 million tons this year, Yatin Wadhwana, managing director at Sucden India Pvt., said at the Singapore conference. The rise would come from increased plantings, Wadhwana said. Sugar production from the European Union will climb to 15.3 million tons in the year from May 1, a unit of the U.S. Department of Agriculture said in a report dated April 8. EU output includes cane and beet sugar. To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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