After years of oversupply and a poorly times industry expansion, Brazilian sugar processors are shutting down mills and growers are neglecting fields as prices fall below the cost of production estimated to be 21 cents per pound. In addition to market factors, the Brazilian sugar industry which accounts for 40% of global exports has been dealing with the effects of the worst drought in decades. The country will likely produce 545.9 million tons this year – 9% below government forecasts and down from 597.1 million tons last year. Despite this drop in output, the International Sugar Organization (ISO) predicts global sugar production will outpace demand for a fourth straight year when the season ends on September 30th. However, for next season Rabobank predicts that global supply will be 2.5 million tons short of demand representing the first supply deficit since 2010. On a global scale the effects of Brazil’s drop in output could be negated by other producing countries such as Thailand, the world’s second largest sugar exporter, which the U.S. Department of Agriculture predicts will see increased exports for the 2014/15 season.
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