Sugar futures rally on rising real, despite weight of Brazilian crush

01.08.2016

Sugar futures jumped, as the boost to price from surging Brazilian real outweighed the pressure from upbeat production data from the county's cane belt.

Data from the Brazilian cane body Unica showed sugar output in the country's Centre South region in the first half of July at 2.82m tonnes, up from 2.79m tonnes in the second half of June.

This was near-double the 1.45m tonnes achieved during the same period of last year, although was broadly in line with analyst expectations, with a Platt's survey forecasting production at 2.86m tonnes.

Cumulative Centre South sugar output so far this season is now running 30% ahead of last year, at 13.8m tonnes, Unica said.

Crushing exceeds expectations

The volume of cane processed during the second half of June was slightly down from the previous two-week period, at 46.75m tonnes, but well ahead of the pace of crushing a year before, thanks to much drier weather which allowed for uniterupted fieldwork.

The pace of crushing was slightly faster than that forecast by the Platt's survey of analysts.

And thanks to rising sugar prices, cane crushers are diverting more of their crop toward the sweetener, rather than to ethanol.

Real lifts prices

But the pace of recent crushing is well built into prices, and sugar markets soared as the Brazilian real rallied against the dollar, up 1.4% in mid-day deals.

The shift in the dollar real exchange rate was primarily driven by some disappointing US economic data.

The strength of real is supportive for sugar prices, as it reduces local currency returns for cane crushes in the world's top sugar exporter.

Sugar is particularly exposed to the exchange rate, as cane crushers have to choose between producing sugar, for export, and ethanol, which is mostly consumed domestically as a road fuel.

A stronger real makes ethanol production a more tempting prospect.

October raw sugar futures were up 1.6% in afternoon deals in New York, at 19.10 cents a pound, after reaching as high as 19.35 cents a pound.


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