Brazil's sugar output makes strong start to season

Sugar futures retreated from intraday highs after Brazil's production season was shown getting off to a strong start, undermining a boost from talk of a downturn in Indian exports.

Raw sugar futures for July posted a gain of 1.8% at one point, taking them to 17.88 cents a pound, on ideas of weakened exports from Brazil, the top producer, and second-ranked India too.

"Exports from India have slowed are stopped in some cases as domestic prices are higher than the world price and the government has not yet announced incentives for raw sugar production for the months of April and May," said Sterling Smith at Citigroup.

Societe Generale also issued a "buy" recommendation on July futures, hedged against a short position in the October contract, questioning the sustainability of the latter contract's premium.

The gap between the two lots "represents a trading opportunity, in our view, as we expect the July-October spread to narrow to about flat during June on typical seasonality," SocGen said.

"The recent dry weather in Centre South Brazil is likely to raise concerns about the crop."

Sugar vs ethanol

However, the July contract closed on Wednesday at 17.72 cents a pound, a gain of 0.9%, after industry group Unica revealed  a rise in sugar output from the Centre South, responsible for some 90% of Brazilian production, in the opening weeks of 2014-15.

Sugar output has soared 120% to 539,000 tonnes so far in the season, which officially started on April 1, although the data included some statistics from some early cane processing too.

The rise in volumes reflected in part growth in cane harvesting volumes, up 71% so far this season to 16.4m tonnes.

Mills also turned more of the cane harvested into sugar, rather than ethanol, than a year before.  Some 33% of cane processed was turned into sugar, rather than 29.2% in the early days of 2013-14.

Contractual obligations

The higher percentage of cane converted to sugar, reflected in part "the wetter weather early in 2013-14, which made it difficult to manufacture the product", said Antonio de Padua Rodrigues, the Unica technical director.

Mills also had contractual obligations to meet, with Mr Rodrigues highlighting "the need to meet the commitments contracted for delivery of sugar at the beginning of the current crop".

In fact, the proportion of cane converted to sugar over the whole season is expected to reach 43.6%, but mills tend to weight earlier cane towards ethanol, thanks in part to higher sugar content typically seen later in the season - although the prospect of an El Nino, which typically brings rain to the Centre South, could weaken that dynamic.

Unica said that 153 of Centre South mills were operating as of April 16, but added that it was expecting 90% of sites to be operating as of today.

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