Shortage in global supply of sugar looms

NEW YORK (AP) – World sugar supplies will probably fall short of demand, said Rabobank Groep, after a cyclone with winds stronger than Hurricane Katrina destroyed homes and smashed crops in Australia, driving prices to 30-year highs.

Tropical cyclone Yasi ripped through northern Queensland, a region growing a third of the country’s cane, cutting output potential in the area by about 50 percent, producers group Canegrowers said. The storm, which the government says may have wiped out at least $507 million of agricultural production, raised speculation that the world’s third-largest sugar exporter may struggle to match last year’s output that was the lowest in two decades.

“The whole house was shaking and vibrating,” said Gerry Borgna, 53, whose family has supplied cane to a mill at Tully, about 87 miles south of Cairns, since the 1920s. “We could hear things flying past and we thought it was part of the house.” At the farm, power lines were lying across the road, a shed stood precariously and cane was pushed over. “To me, this is a disaster,” he said.

Raw sugar soared to 36.08 cents per pound on ICE Futures US in New York on Feb. 2, the highest level since 1980, as the cyclone bore down on Queensland, closing at 32.64 cents Feb. 4.

“On a global basis we thought we would have a slim stock build this year and it is likely that we are going to end up with another deficit,” Rabobank commodities analyst Wayne Gordon said by phone this weekend.

Australian sugar output may be 3.5 million metric tons from the June to December harvest this year, compared with 3.6 million tons from the previous crop, and down from expectations of 4.2 million to 4.3 million tons, according to Rabobank. Flooding and heavy rain before the cyclone reduced estimates by about 500,000 tons and Yasi probably cut the outlook by a further 300,000 tons, Gordon said.

Output may be 3.8 million tons next season, Australia & New Zealand Banking Group said on Feb. 3, while Commonwealth Bank of Australia commodity strategist Luke Mathews said the same day that the crop may be 3.6 million tons.

“It may well be that the production we saw last year might be repeated,” said John King, chief executive officer of Tully Sugar, referring to national raw sugar output. “You would like to think we can better that still, but a lot depends on the growing conditions in the next months.” The closely held company is the target of a takeover bid from Bunge.

The destruction in Queensland from Yasi added to rain and flooding that left 35 people dead and disrupted coal mining. The nation, facing a bill that economists say may reach $20 billion after two months of floods, will need to make budget cuts after the cyclone exacerbated damage, Prime Minister Julia Gillard said this weekend on Channel Ten’s Meet the Press program.

Yasi also slammed into a banana-growing region representing about 85 percent of Australian production. Woolworths raised its prices for the fruit on Feb. 4 and warned the damage would severely affect availability and prices in coming months.

“The region impacted by the cyclone contributes around $1 billion of agricultural production annually, and initial reports suggest at least half of that has been wiped out this year, including around 80 percent of the state’s banana crop,” treasurer Wayne Swan said. –(The Philippine Star)