Brazilian hiccups raise doubts over sugar surplus

by Agrimoney.com

Czarnikow raised doubts over forecasts for sugar's first output surplus in four seasons as the merchant joined observers warning that Brazil was set for its first drop in cane production in more than a decade.

Buyers, who had looked set to regain market power thanks to raised cane and beet plantings in many countries, are "instead once again facing the risk of lower supply" thanks to the setbacks in top producer Brazil, Czarnikow said.

With the country's supplies threatened by lower cane output and logistical hiccups which lifted to 74 the number vessels queuing at Brazilian ports for sugar at the close of last month, has left hopes for an easier world market "entirely in the hands of the northern hemisphere" producers.

And this, largely beet-based, output only starts to hit markets in November, and is "some way from being realised".

"As far as the market is concerned, this raises the question – will the return to surplus once again prove to be illusive," Peter de Klerk, Czarnikow analyst, said.

'Years of underinvestment'

The comments represent a sharp deterioration in Czarnikow's outlook, which last month had foreseen a "sharp rise" in world sugar output in 2011-12 to a surplus of 10.3m tonnes, following three seasons when production had fallen a total of 25m tonnes behind demand.

However, data last week showing that Brazil's sugar output had, in late June, fallen back into year-on-year decline crystallised concerns that the country was set for its first fall in output in more than a decade.

Czarnikow on Wednesday slashed its forecast Brazilian cane output in 2011-12 by 40m tonnes to 535m tonnes, 1m tonnes below a much-cited figure from consultancy Datagro.

The lower prospects reflected "several years of underinvestment" in the sector amid the world economic downturn which now rated, with the 1997 liberalisation of the ethanol market, as one of the major upsets to Brazil's cane industry.

The ageing of Brazil's cane, which has historically been replaced every three years or so, has left "agronomists wary of drawing firm conclusions as they are working with unfamiliar data".

Indian answer?

The merchant also poured cold water on hopes of India, the second ranked producer, filling the gap in raw sugar supplies, saying the country was focused on white sugar trade.

Meanwhile, in Thailand, the second-biggest sugar shipper, has like Brazil found "the ability to get product to the export market to be a problem" thanks to logistical hold-ups.

Nonetheless, raw sugar for October fell 2.1% to 27.01 cents a pound in New York, for October delivery, on profit-taking from last month's rally, and following preliminary clearance by the European Union of alternative sweeteners based on the stevia plant.

London white sugar fell 1.4% to $760.20 a tonne.

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