Sugar prices to rise further

Sugar prices are expected to rise further in 2005/06 due to strong demand and increasing ethanol use amid high oil prices, Barclays Capital said in a research report for the third quarter 2005. "We hold a bullish view on sugar and expect prices to rise higher still, based on supportive fundamentals," the report said.
"Sugar fundamentals in Q3 look very strong, in our view, and within the agricultural commodities complex, it is the commodity on which we are most bullish," it added.
"While production is expected to increase by more than four million tonnes in 2005/06, demand levels are projected to continue to be robust, rising two million tonnes over 2004/05's levels."
Ending stocks are expected to fall by one million tonnes to 34 million tonnes, Barclays Capital said.
NYBOT raw sugar futures rose this month to 9.62 cents per lb, the highest in more than four years.
Liffe white sugar futures touched a new seven-year front-month continuation peak of $324.0 per tonne this month.
"Although the latest USDA data projects the 2005/06 sugar market to be in surplus by 3.5 million tonnes, we believe that demand will be stronger than currently estimated and will put pressure on the market, leading to higher price levels," Barclays Capital said.
It said demand from the world's largest consumer, India, has continued to increase in 2005/06. While production is expected to recover from 2004/05's steep fall, India is projected to import one million tonnes of sugar in 2005/06.
"Strong ethanol demand due to the high oil prices are also a factor that has lifted sugar and with ethanol demand expected to rise higher, sugar prices can be expected to receive a boost," Barclays Capital said. Several analysts have said surging demand for ethanol, a biofuel used in Brazilian flex-fuel cars, would claim a bigger share of Brazil's cane production, reducing cane for sugar production. With oil prices around $60 a barrel and expectations that they could rise further there is a growing incentive to use biofuel as an alternative to power cars.
Raw sugar futures can smash through 10 cents per pound by end-2005 driven by Asian and East European demand and increased use of Brazilian cane for biofuel in cars, analysts and traders said in a Reuters poll this week.
Raw sugar futures are expected to touch a median of 10.0 cents by end-year, according to the survey of 11 analysts - a gain of 10.6 percent over end-2004. Views were little changed on the price outlook from an earlier survey in January.