Sugar prices drop as Brazil cane harvest speeds up

Sugar futures extended losses after data showed a pick-up in production in Brazil's key cane belt, encouraged by favourable weather, although output remains below that a year ago.

Sugar futures for July, temporarily, fell below 17 cents a pound for the first time in three months after industry group Unica pegged output of the sweetener in Brazil's Centre South region in the first half of May at 1.91m tonnes.

Although down 8.4% year on year, output was twice that in the second half of April, easing concerns of a prolonged slowdown to the start of the 2014-15 production season in the Centre South, which is responsible for some 90% of volumes in Brazil, the top sugar exporting country.

"The weather has been mainly dry in Centre South Brazil, and more of the same is forecast," said London broker Marex Spectron.

"This weather dry with occasional patchy showers is perfect for the harvest."

'Delicate financial situation'

Nonetheless, cane harvest volumes during the first half of May were, at 38.8m tonnes, down 4.0% year on year, a reflection of the financial difficulties among Centre South mills caused by low sugar prices for much of the last year.

"Some mills consulted are in delicate financial situation," said Antonio de Padua Rodriguez, the Unica technical director, noting that 249 plants were open as of mid-May, down 19 on the same period last year.

However, mills also turned more cane into ethanol rather than sugar, with the proportion processed into the sweetener falling to 42.5%, from 43.7% in the first half of May 2013, a reflection of a strong market for the biofuel.

"The last two weeks, the use of hydrous ethanol became economically advantageous compared to gasoline in the State of Sao Paulo," Mr Rodriguez said.

'More stunted than ever'

Nonetheless, raw sugar futures for more distant delivery suffered less sharp falls, with the March 2015 contract for instance falling by 1.2% to 18.84 cents a pound, increasing its premium over the spot July lot, amid concerns over the harvest further ahead.

Besides the threat of an El Nino weather pattern, which typically brings excess rain to the Centre South, there are doubts over the quality of the region's cane which will be cut later in the season, after the early-2014 drought hurt crop development.

"The cane which will be harvested later, in July, August September, has still failed to develop," Marex said.

"In fact, it is more stunted than ever. It is hard to say if rain now would be beneficial, giving cane a last chance to grow, or harmful, in reducing sucrose yields and interrupting the crush."

Raw sugar for July was 1.8% down at 17.06 cents a pound, having touched 16.95 cents a pound earlier.

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