Sugar prices dissolve as Brazilian production recovers
Published: 07/27/2012, 7:53:52 AM
Raw sugar futures have dropped 4.5% on news that Brazil's production is picking up speed after being delayed by unseasonable rains, according to Dow Jones.
Futures prices had rallied 18% over the last three weeks on fears the deluge would squeeze supplies from the world's top producer of the sweetener.
The sugarcane crush--or the amount of cane processed by mills into sugar or ethanol--was up 3.9% from a year earlier to 42.18 million metric tonnes for the first half of July in the key Centre-South growing area, sugar industry association UNICA reported Wednesday.
"For the first time in this crop, the biweekly crush surpassed that of the year-ago period," UNICA's interim president, Antonio de Padua Rodrigues, said in a statement.
Sugar production from the crush rose 2% to 2.64 million tonnes from the same period a year ago, UNICA added.
Thursday, front-month raw sugar for October delivery on the ICE Futures U.S. exchange settled 1.07 cents lower at 22.50 cents a pound, up from the day's low of 22.25 cents a pound.
Unseasonable, heavy rains in June delayed Brazil's sugarcane harvest as farmers had trouble entering fields as well as transporting cane. The delay also caused the sugar content of the cane to deteriorate, industry participants said.
UNICA has registered a 3.4% decline in the amount of sugar recovered from each tonne of cane crushed so far.
Some speculative investors are selling--closing out long positions, or bets that prices will rise--due to the improved pace of the crush, said Michael McDougall, senior vice president at brokerage Newedge. However, McDougall doesn't believe the increased crush momentum will restore output to pre-rain levels.
"It's going to be very difficult to meet the big production ideas some people have in their heads, like 32 million tonnes of sugar or 520 million tonnes of cane," McDougall said.
"July is generally the peak month (of the harvest). The further we go forward the more chance there is of more rain and shutdowns," he said.
Brazil's Centre-South still has a long way to go to catch up with last year's crop. Since the 2012-13 season began in April, mills have crushed 170.6 million tonnes of sugar cane, down 22% from a year earlier. Sugar production has fallen 22% to 9.3 million tonnes over the same period of time.
Still, "I think if we can go test 22 (cents a pound) again, I think if we do break 22 (cents), we could go test (20 cents)," said Hector Galvan, senior analyst at R.J. O'Brien Futures in Chicago.
"I think in the long run we may end up going higher, but we have to go lower first. There is more room to the downside here," Galvan said.
In addition, traders are watching the development of the monsoon in India, the world's second-largest producer of sugar.
"The problem is that the rain is still missing the principal production areas in India," Mr. McDougall said. India is at a different point in its crop year, where the budding cane needs rain to develop properly.