Sugar futures extended gains after cane industry group Unica
forecast a 1.8m-tonne decline in Brazilian Centre South output of the
sweetener, adding to production headwinds a preference by mills for ethanol.
Unica, in its first full forecast for the newly started 2014-15,
forecast a cane harvest in the Centre South - which is responsible for some 90% of
Brazilian production - of 580.0m tonnes, within the range of private estimates.
Cane area will rise 5% year on year, although this increase
reflects mainly carryover, or bisada, cane which went unharvested last year
thanks to a spell of wet weather, rather than extra plantings.
However, the cane yield will fall some 8% to 79.8 tonnes per
hectare thanks to the drought which hit much of central Brazil in December.
"In early December, the appearance of the sugar cane crop was
very good, but the intense drought occurred precisely during the period of
greatest development of the cane," said Antonio de Padua Rodrigues, the Unica
Sugar vs ethanol
The result will be a harvest short of last season's 596.9m
And, as a further dent to sugar production, more of the cane
will be processed into ethanol, which will account for 56.44% of the crop, up
1.66 points year on year, at the expense of output of the sweetener.
Centre South sugar production will drop 1.8m tonnes to 32.5m
tonnes, falling for the second time in four seasons, and to a figure below that
some other commentators have factored in.
US Department of Agriculture staff in Sao Paulo last week
pegged the region's sugar output at 33.55m tonnes, a drop of some 1m tonnes
year on year.
Sugar for July, which was standing higher heading into the
report, extended gains to 2.2% for July delivery, taking the contract to 18.01
cents a pound.
The Unica data factor in a calculation that sugar prices,
even while well above levels below 15 cents a pound reached in late January in
New York's futures market, are yet to make it worthwhile for mills to switch
"Current revenue from
the sale of sugar is lower than that provided by ethanol," Unica said.
Mr Rodrigues said: "Future sugar prices in the international
market and the domestic ethanol market indicate a favourable recipe for the
This analysis contrasts with calculations from other observers,
with research institute Cepea on Tuesday saying that crystal sugar offered mills
11% more than anhydrous ethanol, as mixed into gasoline, and 24% more than
However, Cepea concurred with Unica that the sugar market is
relatively well supplied.
"Although the supply of the new crop is not abundant, mills
that still have remaining batches from the previous crop [have] had to reduce
sales prices," Cepea said.
"Wholesalers and traders are also selling sugar batches at
lower values, which prompted some mills to reduce quotes."
Unica also highlighted the poor finances of the industry, a factor
in a relatively small rate of cane replantings which should lead to an ageing
crop profile in 2015-16, "with a negative impact" on next season's crop.
Continuing a "worrying" trend, "at least 10" mills have
closed for 2014-15, compared with one plant starting up.
"The picture is stark - in addition to the 10 plants closing,
there are over 30 mills in bankruptcy protection" or in some other state of "fragile
financial condition", Mr Rodrigues said.