Sugar prices could more than double in two years

Business Materials 13 April 2008 03:36 (UTC +04:00)

A senior Morgan Stanley agricultural commodities trader has said raw sugar prices could more than double to 28-30 cents a pound in two years. ( Reuters )

Jean Bourlot, managing director and head of agricultural trading, Morgan Stanley, 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 pound, down 0.11 cent or 0.88 per cent in afternoon trading. "In 24 months, the sugar market will likely be a completely different market in terms of supply," Bourlot said.

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 per cent 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 US and the European Union could take steps to encourage imports of Brazilian cane-based ethanol in the next 24 months.

Corn prices have been pushed higher by the increased use of US corn to manufacture biofuel.

"The US should be opening the doors to Brazilian cane-based ethanol," Bourlot said.

"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 dollar will provide further support to agricultural commodities.