A senior Morgan Stanley agricultural commodities trader said on Friday raw sugar prices could more than double to 28-30 cents a lb within two years. Jean Bourlot, a London-based managing director and head of agricultural trading, told Reuters.
Sugar prices were historically cheap and may increase due to increased demand for sugarcane-based ethanol and falling sugar output in India. ICE May raw sugar futures stood at 12.41 cents a lb, down 0.11 cent or 0.88 percent in afternoon trading.
"In 24 months, the sugar market will likely be a completely different market in terms of supply," Bourlot, who leads Morgan Stanley's agricultural products trading desk, said in an interview. He said he expected an increasing share of Brazilian sugarcane to be used to manufacture ethanol instead of sugar, and that Indian sugar output could fall as farmers plant more sought-after protein such as wheat instead of sugar.
Brazil and India are the world's biggest sugar producers. More than 90 percent of new vehicles sold in Brazil are flex-fuel, meaning they can run on ethanol or petrol or a combination of both. Bourlot said he believed the United States and the European Union could take steps to encourage imports of Brazilian cane-based ethanol within the next 24 months.
"As long as the price does not destroy demand, as long as people eat meat five days a week, as long as you have population growth and urbanisation, I do not see any downside in the agricultural market," he said. Bourlot said any further decline in the US dollar will provide further support to agricultural commodities, including sugar.