Pressure on sugar prices 'unlikely to fade'

Pressure on sugar prices is "unlikely to fade" until at least the last quarter of 2013, thanks to the boost to supplies offered by surprisingly strong Brazilian production, the International Sugar Organization said.

The organisation raised by more than 2.3m tonnes, to 8.53m tonnes, its forecast for the surplus in world sugar output in 2012-13.

"A higher crop in Brazil has boosted the surplus further," the ISO said, lifting by 2.2m tonnes, to 40.3m tonnes, its estimate for sugar output in the top producing country.

The estimate for world production in 2012-13 was lifted by 2.81m tonnes to a record 180.4m tonnes, in raw sugar terms, well ahead of consumption, for which the forecast was raised by 470,000 tonnes to 171.8m tonnes.

'Bearish pressure'

The unexpectedly large Brazilian production, notably in the key Centre South region, had been the "most influential" factor in the continued decline in sugar prices, which last week hit a 30-month low, for a spot contract, of 17.87 cents a pound on New York's Ice futures market.

"Dry weather in the closing months of Brazil's Centre South harvest allowed production in the region to race ahead of market expectations," the ISO said.

And with a "rather low probability of a return to a deficit phase in the next crop year", prices look unlikely to recover.

"It seems that the bearish pressure on world market prices is unlikely to fade, at least before the end of the current season in September."

Competition for cane

The ISO's assessment of sugar price and production forecasts comes despite an estimate of a 12% jump in 2013 to 23.9bn litres in Brazil's output of ethanol, which competes for cane with sugar in the South American country.

Ethanol consumption in Brazil is seen rising by 10.4% to 21.2bn litres.

Many commentators have raised growing competition between sugar and ethanol for cane as a major support for prices of the sweetener, after Brazil revealed it was to raise to 25%, from May 1, the level of ethanol its blenders must mix into gasoline.

New York's March raw sugar contract stood down 1.6% at 18.06 cents a pound in late morning deals, with the better-trade May lot down 1.5% at 17.85 cents a pound.

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