Thursday, July 11, 2013

Sugar prices drop despite fall in Brazilian output


Sugar prices came within an ace of a three-year low despite a further decline in output from Brazil's key Centre South region, as "severe rains" and the greater returns from converting cane into ethanol took their toll.

Raw sugar for October reversed early gains to close 0.6% down at 16.25 cents a pound in New York, 0.04 cents from matching the lowest finish for a spot contract since June 2010.

The drop came despite data showing a further decline in output from the Centre South, responsible for some 90% of Brazilian production, to 1.50m tonnes in the latest fortnightly period, the last half of June, well below a season high of 2.10m tonnes reached in the first half of May.

The total was also 16.4% below production in the second half of June 2012, the data, from cane industry group Unica, showed.

'Severe rains'

The decline in output was down to "severe rains", Unica said, although levels of precipitation varied greatly between regions, with some mills seeing "very small" setbacks, while in others the pace of cane processing slowed "close to zero".

The volume of cane crushed fell 8.2% year on year to 29.1m tonnes during the fortnightly period.

Furthermore, mills turned most into ethanol, with the proportion converted into sugar coming in at 41.9% for both the two-week period and 2013-14 so far, which started in April.

This compares with a cumulative 46.2% of cane turned into sugar as of this time last season, and was indeed the lowest figure but one of the last 10 years.

"Only in 2008-09 was there a figure lower than that recorded so far this year," the group said.

Ethanol's appeal

Indeed, the appeal to mills of making ethanol - whose price has been supported by changes to fuel prices, taxes and ethanol-gasoline blend rates in Brazil – over sugar at values less than half those reached in 2011 means that the biofuel is in increasing favour.

"If we do a simple exercise, extrapolating the trend so far this season into the subsequent periods, we conclude that all the expected growth in cane grindings may be directed to ethanol production," Antonio de Padua Rodrigues, the Unica technical director, said.

Production of anhydrous ethanol, that used for blending with gasoline rather than utilised neat like hydrous ethanol, has "more than doubled compared to last season", he noted

Nonetheless, the extent of the switch to ethanol, and of the rain delays to cane harvesting, had been factored in to prices during a late-June rebound in futures prices, before a fresh retreat this month, fuelled by strong monsoon rains boosting prospects for India's cane crop.

Furthermore, cumulatively, Centre South sugar output so far in 2013-14, is still one-third higher than a year ago.

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