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Brazil cane crop faces 'terrible catch 22'

Brazil's cane crop faces a weather "catch 22", being likely to suffer whether conditions remain dry or if it rains, Marex Spectron said, holding out the possibility of further downgrades to the harvest.

The "real problem" for cane growers in Brazil's key Centre South region is that drought which sent prices soaring in February "is still going on", the London broker said.

"Every day without rain is harmful to the cane. June has been dry, and looks to continue dry."

However, rain that would improve prospects for the cane yield in the Centre South, responsible for some 90% of Brazilian output, would lower sucrose levels in the crop, also curtailing potential for the levels of sugar and ethanol that can be made from it.

'Terrible catch 22'

"The crop is in a terrible catch 22," Marex said.

If it rains, a prospect made more likely in the region by the El Nino weather pattern believed to be forming, "it washes out the sucrose, and if it doesn't rain, the effects of drought will simply get worse and worse."

The extent of the impact of rains can be judged from 2009, the last El Nino year, when the level of sugars recovered from cane fell to 129.6 kilogrammes per tonne of crop, from 140.1 kilogrammes per tonne the year before.

In fact, with the cane harvest yield already running 8.8% below year ago levels, according to industry group Unica and, according to Marex, "likely to get worse" as cane most affected by drought is harvested, there is a the risk of a double whammy of a "serious fall" in both sucrose levels and crop tonnage.

The broker added: "Then the amount of sugar produced could fall even further… to below 30m tonnes (?)."

Kingsman downgrade

The comments follow a rebound in sugar prices last week fuelled in part by Centre South output downgrades, coupled with concerns over the weak start to the monsoon in India, the second-ranked sugar producing country, and the top consumer.

Commentators cutting forecasts for Centre South sugar output included Platts Kingsman, which lowered its estimate by 800,000 tonnes to 33.2m tonnes.

The downgrade reflected a reduction of 10m tonnes to 575m tonnes in the forecast for the region's cane production.

"Due to lower agricultural and industrial yields, both reported and expected, we have decided to lower our production expectations for both sugar and ethanol in Centre South Brazil," the analysis group said.

The cane harvest in 2013-14 reached 597m tonnes.

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