Adecoagro, flagging the potential for a drop in Brazilian
cane volumes, said it was upbeat on the prospects for a sugar price recovery
even as futures extended a recovery in New York.
Mariano Bosch, the chief executive of Adecoagro - the South
American corn-to-milk producer whose major shareholders include celebrated
investor George Soros - said that the group was "not worried in terms of sugar
prices", despite a steep drop in values from November highs.
"We think that the fundamentals are still there, and we
should expect better prices going forward with sugar prices," Mr Bosch told
The group cited the potential for lower sugar cane production
in Brazil's key Centre South region in the 2017-18 season, which started last
'Prices will be
Walter Sanchez, the Adecoagro chief commercial officer, flagged
the prospect of a cane crush of 580m tonnes, down from the 607m-tonne volumes
seen last season, according to the Unica industry group.
"If Brazil is coming up with a lower harvest
prices will be
coming up from these levels," Mr Sanchez told investors.
Commentators have cited reasons from lower volumes of cane left
over from the previous season to higher replanting rates, meaning significant
crop too immature to harvest, for forecasts of declining processing volumes.
Unica itself foresees the crush this season at 585m tonnes.
El Nino factor
Mr Sanchez also highlighted the potential for a weaker
figure El Nino, which tends to bring wetter conditions in the Centre South
as, indeed, observed in the early stages of the 2017-18 harvesting campaign
to cause extra pressure on volumes.
Viewing the potential for an El Nino at 50%, Mr Sanchez said
that the weather pattern "will be affecting the production in most of the
"And I think that's another additional supposed item for
prices" for the second half of the calendar year.
'Heavy enough to
The comments come even as sugar prices are staging some
recovery from a one-year low of 15.12 cents a pound set last month on New York's
The spot July contract stood at 16.13 cents a pound in early
deals on Wednesday, up 1.6% on the day, with further wetness viewed as offering
support to prices.
"Weather forecasters have reiterated forecasts for some
heavy rain across a large segment of southern Brazil's
cane regions," said Tobin Gorey at Commonwealth Bank of Australia.
"The rain looks very likely to be heavy enough to hamper
harvesting for a time."
'Pressure will build
for short-covering rally'
However, he also flagged the role of a stronger real, which
supports the value in dollar terms of assets, such as sugar, in which Brazil is
a major player - while weighing on prices in the South American country itself,
so deterring producer sales.
"The Brazilian real continues to rally, cutting the
attractiveness" of domestic sugar sales, he said.
Meanwhile, the accumulation by speculators of a net short
position in sugar of nearly 16,000 lots down from a net long of more than
170,000 contracts three months ago has raised ideas that this may provide
ammunition for price gains, if holdings are closed.
"It seems the pressure will build for a short-covering rally
in the short to medium term," said Tom Kujawa at Sucden Financial.
Ethanol vs sugar
Another factor in play among sugar investors is the
so-called ethanol parity the level at which it is equally appealing for
Centre South mills to turn cane into the biofuel or sugar, and generally seen as
equivalent to a sugar price a little below 15 cents a pound.
However, the figure does differ by region, and Mr Sanchez
said that Adecoago was receiving a 9% premium for making anhydrous ethanol over
The group also revealed that it had slowed its hedging year
on year a strategy in line with expectations of higher prices ahead having sold
367,500 tonnes of sugar forward for 2017-18 as of the end of March, equivalent
to 58% of output.
A year ago, it had sold 420,980 tonnes of sugar forward, for
The price received so far for this season, at 19.2 cents a pound,
is significantly ahead of the 14.1 cents a pound that Adecoagro locked in as of
a year ago.