Thailand’s sugar production is poised to rebound next season after the worst drought in 40 years decimated yields in the world’s second-biggest exporter, paving way for a supply glut that could thwart a bull party.

A combination of record cane prices for farmers and improving rainfall will boost sugar output 59% to 11 million tons in the 2021-22 season starting in October, according to London-based trader Czarnikow Group. That’s the highest in three years and would be a stark turnaround from 2020-21, when production hit a decade-low of 6.9 million tons.

“This time next year the market should have plenty of Thai white sugar and we could see the strength in white premium potentially fade due to that,” said Ben Seed, an analyst at Czarnikow. “A bigger Thai crop puts a dampener on the current bullish environment and leaves the market vulnerable to the downside next year.”

Drought-led losses and poor prices have prompted many farmers to abandon cane in favor of rival crops like cassava, resulting in a 7% increase in cassava plantings last year, according to Thailand’s Office of Agriculture Economics. Now, a rally in global sugar prices to near the highest in more than three years is spurring Thai millers to lure back farmers with record cane prices.

White-sugar futures rose 0.6% to $454.80 a ton as of 11:35 a.m. in London.

Cane returns to farmers, which are calculated based on yields, farmers’ costs and the final cane price, are estimated at an average of 4,150 Thai baht ($138) per rai this season, more than twice that of cassava, according to data compiled by Czarnikow.

Sweet Return

An improving weather outlook is also lifting prospects for cane plantings that usually begin in April. The Thai meteorological department predicts near normal to 20% above-normal rainfall in cane-growing areas of central and northeastern Thailand in the two months through April.

“The rising global price will increase sugarcane prices in Thailand and motivate farmers who had already decided to cancel sugarcane-growing to return to cultivation again,” Industry Minister Suriya Juangroongruangkit said in an interview. “Sugar factories are also incentivizing farmers to increase their cane cultivation as the rainfall forecast for next season will be better.”

Thailand’s Industry Ministry forecasts output to increase at a more modest pace to 9.4 million tons in 2021-22, compared with an estimate of 8 million tons this year. Still, that marks the first annual rise after relentless drought hurt yields and propelled prices of the sweetener.

White-sugar premium to raw sugar climbed to a six-month high in January as low output in Thailand and the European Union this season, coupled with a shipping container crunch in top consumer India, tightened the market. The premium has since slipped and could drop further in anticipation of a revival of output in the world’s second-biggest shipper next year.

The strong rebound in Thailand’s output will also curb demand for raw sugar from re-export refineries, and push the global surplus up 29% to 5.3 million tons in 2021-22, said Czarnikow’s Seed.