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."
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
"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
"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
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.