Brazil sugar output drops, as mills preserve cane

The pace of sugar production in Brazil's key Centre South region slowed sharply in what may be the first sign of mills slowing processing on expectations of drought-diminished cane volumes ahead.

The Centre South, responsible for some 90% of Brazilian sugar output, produced 2.24m tonnes of the sweetener in the second half of July, down 12.5% on volumes in the first half of the month, data from industry group Unica said.

The slowdown, which also took output 12.0% below year-ago levels, reflected in part the rains in central Brazil which slowed cane harvesting.

"This decline is due to the rains that occurred in part of the region producing sugar cane," said Antonio de Padua Rodrigues, Unica technical director.

'Prospect of reduced supply'

However, Mr Rodrigues said that the drop of 19.0%, to 35.98m tonnes in cane processing volumes in the latest period, compared with the first half of July, was also down to mills preserving cane supplies in expectation of weak late-season volumes.

Mills had also reduced operations thanks to "the prospect of reduced supply of raw material for processing this harvest", he said.

While the volume of cane processed since the start of the harvest, in April, has risen by 3.8% to 280.4m tonnes, it has come in at far lower yields, curtailed by early-2014 drought.

Indeed, yields are "declining", running last month ran some 10% behind those of July 2013, Unica said, noting a particular drop in the state of Sao Paulo, at the heart of the Centre South region.

Market reaction

A disappointing finish to the Centre South crushing season - which tends to close late in the calendar year before a typically rainy period £ has long been forecast by many commentators, thanks to the hangover from drought.

However, a build-up in sugar inventories in Brazil, in part down to slow exports, plus ample world supplies left over from four successive years of production surplus, have rendered investors reluctant to back a recovery in sugar prices.

Some observers, such as Macquarie, foresee a revival in sugar prices ahead, as the impact of the Centre South cane shortfall becomes more apparent.

In New York, raw sugar for October extended losses after the Unica data, standing 0.4% lower at 16.17 cents a pound shortly after the report.

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