The switch by Brazilian mill from turning cane into ethanol
rather than sugar identified earlier this week may set a trend, Macquarie said,
forecasting a recovery in prices of the sweetener to levels not seen for six
Macquarie acknowledged the pressure on sugar prices from
weak import demand as strong crops in China and Russia curb their need for
And it raised again its forecast for Brazilian Centre South cane
production, to 515m tonnes, in 2102-13, flagging the extent to which mills had
recovered their pace of crushing – which hit a record in August – after a
rain-delayed start to the season.
The cane harvest to could rise to 550m tonnes in 2013-14,
thanks to the long-term boost to cane yields from the rains, besides the impact
of replanting ageing, low-yielding crops, the bank said.
'More diversion towards
However, even while trimming its forecast for New York sugar
prices in early 2013, its forecasts factored in a return to 24.5 cents a pound
by late next year as ethanol makes a bigger call on Brazil Centre South cane.
The region, responsible for nearly 90% of Brazil's cane
harvest, "will manage to eke out a decent recovery next season in cane production,"
Macquarie analyst Kona Haque said.
"But we believe that there will be more diversion towards
ethanol, which will limit the growth in sugar production."
'Ethanol is a lot more
The forecast reflects a recovery in Brazilian ethanol exports,
given the hit to US competitiveness in the biofuel from high prices of corn, the main feedstock in America.
"The export market for ethanol is a lot more lucrative right
now for Brazil than before, and exports are running over 40% above last season's
Furthermore, the bank flagged talk that the government may
in May restore to 25%, from 20%, the level of ethanol mixes with gasoline, swalloing
up some 20m tonnes of cane, equivalent to 2.6m tonnes of sugar.
Rising gasoline prices too "could easily alter the Brazilian
cane production mix back in favour of ethanol, which in turn would limit the amount
of sugar Brazil exports".
The comments come two days after data from industry group Unica
showed Centre South mills in the last half of September using only 48.6% of cane for making
sugar, with 51.4% for ethanol, below rates so far in 2012-13.
In the last half of September 2011, the proportions were
51.8% of cane for sugar and 48.2% for making ethanol.
The recent dynamic reflected indeed strong export hopes, with
mills producing 428.7m litres of ethanol for export during the period, more
than twice that a year before.
However, the large number of mills offline during the
fortnight for maintenance has raised some questions over whether the degree of ethanol
will prove anomalous.
Macquarie also cited lower hopes for Indian sugar production
in 2012-13 in its forecasts, cutting its output estimate by 600,000 tonnes to
23.8m tonnes "on account of the poor [cane] yields in south western states"
following disappointing monsoon rains.
"A loss of 2m tonnes-plus of sugar in India will make it
very difficult the country to maintain the 2m-3m tonnes of exports it achieved
this season," Ms Haque said.
Furthermore, strong demand means "India's stock situation
may not be as comfortable as the market is thinking".
New York sugar for March stood 1.9% lower at 20.86 cents a
pound at 07:15 local time (12:15 UK time).