Sugar futures drop, after dryness gives twin boost to Brazil output

27.07.2017

Sugar futures lurched lower after industry data showed Brazilian mills accelerating production of the sweetener even faster than investors had expected, as dryness boosted cane harvesting and crop quality.

Raw sugar futures for October, which had stood flat in the run-up to the statistics from industry group Unica, tumbled to 13.98 cents a pound at one point, a tumble of 2.9%.

The Unica data showed mills in the Centre South, responsible for some 90% of Brazilian sugar output, producing 3.10m tonnes of sugar in the first half of this month - above the 2.97m tonnes produced in the second half of June.

The performance also narrowly beat the 3.07m-tonne figure that the market had expected, according to a poll by S&P Global Platts.

'Favoured by the climate'

Centre South mills in fact crushed, at 47.8m tonnes, a little less cane during the first half of this month than the 48m tonnes forecast by investors, although this represented a slight improvement on the 47.6m tonnes processed in the second half of June.

Analysts estimate that prevailing dry weather meant that mills lost only 0.3 days of crushing to rains in the first half of July, compared with 1.6 days for June overall.

However, the dryness also boosted the concentration of sugars in cane, which at 135.1 kilogrammes per tonne of crop exceeded the year-before result by more than 2 kilogrammes.

Sugar levels were "favoured by the climate in the Centre South, dry and without rainfall during the first half of July", Unica said.

"Reflecting this recovery, for the first time in the current crop" the average concentration of sugars in cane so far in 2017-18, which began in April, exceeded the year-ago level.

'Bearish'

Unica estimated at 50.4% the proportion of cane going to make sugar, rather than ethanol, during the first half of July, a figure in line with market expectations.

Still, Sucden Financial termed a figure at this level "bearish", said showing mills "to be maximising sugar production despite prices approaching the ethanol parity level during the period".

Ethanol parity is the point at which mills have equal financial incentive to produce sugar or ethanol from cane, and was reckoned to be below 13 cents a pound in sugar terms until being pushed up in the last few days by a rise in domestic gasoline prices, and a tax move.

However, Unica urged "caution" over the data on the ethanol-sugar split, saying that this had been influenced by a decline in results from ethanol-only producers.

"As a comparison, in the fortnight being analysed, these units were responsible for 14.5% of the sugarcane processed volume in the Centre South, compared with 16.8% on the same date as the 2016-17 crop."


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