Industry officials cautioned over a slowdown in Brazil's
cane harvest ahead, even as they unveiled another spell of above-forecast sugar
output in the Centre South, depressing sugar prices.
Cane industry group Unica pegged sugar production in the
Centre South, which is responsible for some 90% of Brazilian output, at 3.41m
tonnes in the second half of July.
Besides being up 9.5% year on year, production at that level
was some 200,000 tonnes ahead of market expectations, as gauged by a survey by
S&P Global Platts.
And it reflected a cane crush which, at 50.74m tonnes, up
some 2.6% year on year, came in a little ahead of market expectations too.
The accelerating pace of processing – which continued to
catch up with last year's volumes, which were boosted by an unusually early
start to the crushing season – has been spurred by drier weather which has allowed
speedy harvesting of cane.
However, Unica cautioned of a downside to the dryness too,
in terms of constraining future prospects for cane yield, which are boosted by
At the start of the season, in April, climatic conditions
and field observations "indicated a recovery of yield, even with older cane
fields," which tend to be less productive.
"This perception has been drastically altered after this
prolonged period without rain," the group said.
"Important sugar cane regions already express concern about
the potential impact of this scenario" on the outcome of the current campaign."
Monitoring the impact of the dryness on cane crops "will be fundamental"
to determining whether revisions are needed for industry forecasts, particularly
for cane volumes, Unica said.
Sugar vs ethanol
The impact on prices of the report was actually to foster
some recovery in New York sugar futures, which for October stood at 13.21 cents
a pound some 90 minutes after the data, a drop of 0.2% on the day, but up from the
13.13 cents a pound at which they stood ahead of the release.
Indeed, the Unica caution also follows observations form
analysts of another potential squeeze on sugar output, with prices deemed have
fallen below so-called ethanol parity – the level at which mills have equal
financial incentive to manufacture either the sweetener or the biofuel from
This relationship was underlined on Thursday by Cosan,
Brazil's sector leaders, which said that while it was "focused on maximising
sugar" output over ethanol output - processing 67% of cane from the early
harvest into sugar, up from 55% a year before – the reward dynamics were
The group's Raizen division "analyses the profitability of
each products on a daily basis", Paula Kovarsky, the group's investor relations
head told investors.
Ms Kovarsky added that Cosan remained sanguine on prospects
for sugar values, saying that "while the market continues pricing a surplus in
the current crop", evident in weakness in futures, "we still see as it as more
of a short-term pressure on prices".
Such an outlook was evident in forward sugar hedging, in
which "not much was advanced".
As of the end of June, Cosan had sold forward 2.11m tonnes
of sugar for this season, and 329,300 tonnes of sugar for 2018-19.
That compares with figures of 1.83m tonnes and 228,800
tonnes respectively as of the end of March.
At the end of June last year, the group had sold forward
2.57m tonnes of sugar for 2016-17, and 954,700 tonnes for 2017-18.
Cosan expects its sugar output to hit 4.30m-4.70m tonnes
this season, up from 4.23m tonnes in 2016-17.