Brazil sugar output slows as ethanol appeal tells

The improved economics for Brazilian cane mills of producing ethanol rather than sugar have begun to play out in earnest, as they escaped from "historic commitments" to produce the sweetener.

Sugar production in Brazil's Centre South region, responsible for about 90% of national production, came in at 1.84m tonnes for the second half of May down 10.8% on output in the first half of last month, and a drop of 6.2% year on year.

The decline was in part down to "rains that hit the main producing regions at the end of the fortnight, hindering harvesting operations", Antonio de Padua Rodrigues, the Unica technical director, said.

This wet weather had also "hampered" cane harvesting early this month, setbacks which should be reflected in Unica's next fortnightly report, he added.

'Pre-committed sugar agreements'

However, the drop in sugar output was also down to the better economics of producing ethanol, at a time when New York raw sugar prices are near a three-year low, had shone through.

"In spite of the limitation imposed by historic sugar delivery commitments, the price differential between producing ethanol and sugar incentivised mills to prioritise the production of biofuel," Mr Rodrigues said.

Macquarie on Monday flagged the role of "pre-committed sugar supply agreements" in forcing mills to produce more of the sweetener than market economics would dictate.

In fact, the proportion of cane going to make sugar sank to 41.78%, down from 48.31% in the second half of May 2012, and from 43.66% in the first half of last month.

Meanwhile, ethanol output in the latest period soared 22% to 1.57bn litres.

'Robust crushing progress'

Nonetheless, the data showed Centre South sugar output so far in 2013-14 at 5.61m tonnes, a rise of 59% year on year, an increase in part down the earlier opening of mills this year from wet season shutdowns.

The data fostered some recovery in New York raw sugar futures for July from a low of 16.18 cents a pound, the lowest since July 2010.

However, at 16.29 cents a pound, the contract nonetheless closed down 0.4%, its lowest closing low for nearly three years.

"Unica's Centre South crush report revealed further robust crushing progress in the second half of May, despite periodic rain disruptions," Luke Mathews at Commonwealth Bank of Australia said.

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