EU drop in sugar output offers 'glimmer of hope' for supply glut

By Ana Ionova

LONDON (Reuters) - The European Union is poised to reduce its sugar exports as poor weather and low prices dent output from the bloc, a move analysts said on Tuesday could help ease a global supply glut.

The EU is expected to produce 17.3 million tonnes of sugar in the current 2018/19 season, down from 19.6 million tonnes in 2017/18, John Stansfield, trader and analyst at Group Sopex, told an industry gathering in London.

As a result, the EU was expected to export only 1.65 million tonnes of sugar in the 2018/19 season, down from exports of roughly 3.4 million tonnes in 2017/18, Stansfield said.

Marex Spectron also expects a decline in 2018/19, although it forecasts slightly stronger EU exports of 2.2 million tonnes.

The decline in output and exports is partly due to poor weather conditions this year, with disruptive rains delaying planting and drought in the key summer months denting yields, Stansfield said.

The plunge in prices, which hit their lowest in more than a decade last month, are also convincing some European farmers to switch out of beet and into crops offering higher returns.

Stansfield said when a farmer "looks at the grain prices, he can see them going through the roof. He looks at the beet price and it's going through the floor."

EU production could dip further to 16.1 million tonnes in 2019/20 and exports to the world market could fall to 500,000 tonnes, according to estimates from Group Sopex.

Robin Shaw, EU analyst at Marex Spectron, forecast a 10 percent drop in contracted sugar beet area in the next 2019/20 season.

"European farmers are quite certainly beginning to question this whole policy of (producing) maximum beet," Shaw said.

The possible reduction in EU supply represents a "glimmer of hope" in a market otherwise still plagued by global oversupply as Indian output is expected to remain strong in the next season, Stansfield said.

Faced with a global supply glut and plunging prices, several European sugar firms have tried to limit production and better align the prices they pay farmers with the world price.

British Sugar agreed a lower beet price last month with farmers and scrapped three-year deals in favour of one-year contracts.

Under the new model, it said farmers would have "the option to share more of the reward and risk that exists in the sugar market today."

France's Tereos also asked its cooperative members to reduce plantings as it seeks to cut its sugar beet production next year by 5 percent.

French sugar group Cristal Union scrapped minimum prices this year and tied the price it pays for beet to the world price of sugar, citing tough market conditions.

(Reporting by Ana Ionova; Editing by Edmund Blair)