Brazil heatwave 'serious fear' for sugar - in 2015

Brazil's heatwave could prove a "serious concern" for sugar output – but not until 2015, Marex Spectron said, foreseeing prices "soon" starting a long-term recovery.

It is "probably too early to get concerned" about prospects for the 2014 cane crop in the Centre South - which makes some 90% of sugar in Brazil, the top producing and exporting country – despite temperatures which have set records in some areas, the broker said.

It appears that the heatwave will suffer a "break-up" in about 10 days, an outlook reflected by forecasters such as Somar, wand the dry weather "might actually be beneficial" for the concentration of sugars in cane.

However, the hot and dry spell, which kicked in later in December in earnest, "may actually be much more serious for the following cane crop", of which harvesting begins in April 2015, Marex said.

'Very seriously down'

The dry weather has meant that some plantings made during the peak sowing season, from November to January, "simply died, and others weakened", the London-based broker said.

So levels of replanted cane, which in Brazil typically takes about 18 months to reach production, "could be very seriously down" for 2015.

In January itself, "almost no plantings took place" because of the poor weather, meaning low levels of resowings and an older, less productive age profile in cane, which is typically kept for 4-7 years.

"If you then factor in low husbandry during 2013 due to low prices, and the probability - if world prices stay low - of many more mills failing to open in 2015 and… you begin to get a serious concern for 2015 and beyond."

Price prospects

Setbacks looked likely in other major producing countries too, with low prices already leading to a drop in plantings in China, a top importing country, where sowings in Hainan have fallen by 11%.

In India, the second-ranked producing country, arrears in payments by mills to cane farmers are expected to hit about 180bn rupees ($6bn), "and this is certain to reduce plantings", while in Thailand, the second biggest exporter, a subsidy fund is said to be running out of money.

"We believe that 2015 is going to be a year of deficit. So we believe that our futures market has to do its job and anticipate the looming deficit by starting soon on the road to higher prices," Marex said.

"Prices high enough to encourage an expansion of production ought to be well above 20 cents a pound."

However, with producer selling likely to keep weighing on prices, the "first stage" of recovery would get prices to the level at which turning cane into sugar rather than ethanol become more profitable, at about 17.00-17.60 cents a pound.

'Production may decrease'

The comments come as a major sugar industry conference in Dubai has put Brazil Centre South production prospects centre stage.

"There is little doubt that conference delegates in Dubai are looking carefully at future developments as a result of the recent dry weather in Centre South Brazil," said Nick Penney, senior trader at Sucden Financial, which has cut its yield forecast for the next harvest to 77.5 tonnes per hectare from 80.0 tonnes per hectare.

"The current consensus coming out of the conference is that production may decrease due to stress, due to low prices and also on concentration on ethanol production by Centre South Brazil," assuming India backs an export subsidy which could see 4m tonnes shipped.

However, against the increasing prospect of an India deal, raw sugar for March eased 0.6% to 15.64 cents a pound in New York in late morning deals.

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