Brazilian double whammy pushes sugar prices to 13-month low

Sugar futures slumped to a 13-month low on a double whammy of a cut in fuel prices, and data showed Brazilian mills processing more cane than had been expected.

Cane crushers in the Centre South, which is responsible for some 90% of Brazilian sugar output, processed 38.5m tonnes of the crop in the first half this month, industry group Unica said.

While down some 1.2m tonnes on the volume of cane handled in the first half of May last year, the figure was well above the figure of 36.2m tonnes expected by investors, who had foreseen a bigger disruptions from rains during the period.

The volume of sugar produced during the fortnight, at 2.11m tonnes, rose by 35,000 tonnes year on year – contrasting sharply with the drop of some 225,000 tonnes that the market had expected, according to an investor survey by S&P Global Platts.

Sugar vs ethanol

The sugar output reflected, besides resilient cane volumes, an increase to 46.8% in the proportion of the crop processed into sugar, rather than ethanol.

That was also above investor expectations, by 0.9 points.

Furthermore, the cane was in better condition than analysts had thought, by some 3 kilogrammes of sugars per tonne of crop, coming in with a concentration of 122.9 kilogrammes per tonne.

Lowest prices in 13 months

Raw sugar futures for July extended declines after the data, touching 15.02 cents a pound in New York at one point, the lowest for a spot contract since April last year, and down 4.1% on the day.

London-traded white sugar futures also hit a 13-month low, of $438.00 a tonne.

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The complex had already been under pressure after Petrobras, the Brazilian state-run oil group, overnight revealed a 5.4% cut in average prices for gasoline, as well as a 3.5% cut in diesel prices, at refinery level.

Weaker gasoline prices weigh on values of rival fuel ethanol too, in turn undermining prices of sugar, given the weaker competition for cane from the biofuel.

Gasoline, real impacts

“Should the full [Petrobras] cut be passed on to consumers, this would represent an estimated reduction of 2.2% for diesel prices and 2.4% for gasoline,” said Nick Penney, senior trader at Sucden Financial.

“It would reduce the competitiveness of ethanol with gasoline and, given the continued weakness in the Brazilian real, further encourage producers to make sugar for export rather than ethanol for internal consumption.”

A weaker real boosts local prices of assets, such as many commodities, traded internationally in dollars.

However, sugar tends benefit more than ethanol, given Brazil’s pre-eminence in exports of the sweetener.

Raw sugar futures for July stood at 15.14 cents a pound in late morning deals in New York, a drop of 3.3% on the day.

London white sugar futures for August stood down 2.4% at $440.20 a tonne.

 

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