Sugar production in Thailand could reach record levels this coming harvest season after recent rain offset the effects of a strengthening El Nino to boost crop growth, according to Office of the Cane and Sugar Board.
The harvest could well expand for a seventh year to an all-time high of 111 million tonnes in the season starting November, yielding 11.5 million tonnes of sugar, said Warawan Chitaroon, the director of the board's Cane and Sugar Industry Policy Bureau.
With El Nino keeping central Thailand at its driest in about 30 years, expectations were emerging that the weather pattern may limit output by the world’s second-biggest sugar exporter.
However, although welcomed by growers the crop-saving rain coud worsen the slump in global sugar prices, that last week fell to a six-year low. Global supplies have outpaced demand for five straight years, and good weather in parts of top exporter Brazil will boost the harvest there.
“The rains started in some areas last week, which will help reduce the impact of the drought,” Mr Warawan said in an interview last week. “Even as prices now are lower than production costs, farmers still favour cane over other crops because it gives a stable income.”
Thailand produced an all-time high of 106 million tonnes of cane in the 2014-2015 season, with sugar output of 11.3 million tonnes, according to the cane and sugar board.
The bigger crop may offset a drought-induced reduction in yield, said Mr Warawan. The estimate will be updated in September.
The first El Nino since 2010 is getting stronger and is expected to last into next year, according to forecasters in the US and Australia. The pattern affects weather worldwide, including baking parts of Asia and is already curbing the outlook for Thailand’s rice exports.
“The water shortage amid severe drought could reduce output nationwide by 5%,” said Suchai Limsommut, chairman of United Association of Thai Sugarcane Planters. “We pray for rain before crushing starts later this year.”
Sugar prices have tumbled 23% this year to the lowest level since December 2008 last week. Futures for October delivery closed 2.4% lower at 11.24 cents a pound on the ICE Futures US, after touching as low as 11.20.
Futures may climb to as high as 15 cents in the second half as the current prices are attractive for building up inventories, according to Mr Warawan.
Global production may drop 0.5% in the 2015-2016 season to 173.4 million tonnes, almost matching demand, the US Department of Agriculture estimates.
Inventories may drop to 40.5 million tonnes at the end of the season from 44.3 million tonnes a year earlier, the first decline since 2009-2010, the data show.