Sugar prices extended gains to 3% after data showed the
strong start to Brazilian sugar output this season fizzling out, thanks to
financial woes among mills which raised concerns of downgrades to cane volume
Raw sugar for July delivery stood up 3.1% at 17.82 cents a
pound in midday deals in New York, regaining in one swoop the contract's 10-day, 20-day, 50-day, 75-day
and 200-day moving averages.
While futures had started strong on Tuesday, and gained some
ground after the International Sugar Organization heralded the potential return
of the world sugar cycle to a "deficit phase", the rally accelerated after
industry group Unica revealed that a rapid start to Brazil's production season
had slowed dramatically.
Furthermore, Platts Kingsman on Tuesday ditched ideas of a
world sugar surplus of 2.1m tonnes in 2014-15, forecasting a production deficit
of 239,000 tonnes instead.
Unica data showed that mills in Brazil's Centre South region
- which had in the first half of April, the month that the 2014-15 season
opens, doubled sugar output - recorded production of 930,600 tonnes in the
second half of last month, a plunge of 36% year on year.
The slowdown left overall April output for the Centre South,
responsible for some 90% of domestic sugar output, at 1.47m tonnes, down 13.3%
year on year.
The drop reflected in part a higher proportion of cane being
turned into ethanol rather than sugar, with some talk of mills needing to keep
up output of the biofuel to meet early-season contractual commitments.
Mills turned 62.9% of the cane they processed into ethanol,
compared with 58.2% a year before.
But the drop was down in the main to a lower volume of cane processed
as some mills delayed reopening from the close season, which starts around late
Of the 256 operators which had, in January, forecast opening
by the end of last month, only 215 actually did so - behind the 236 open as of
the end of April last year.
'Times of crisis'
Unica said that mills' postponements were down in part to the
dent to cane supply prospects from Brazil's early-year drought, which has
prompted the association to forecast a Centre South harvest of 580.0m tonnes
this season, down 3% year on year.
"Several mills postponed the start of season due to climatic
conditions, in some cases reducing their estimated supply of sugar cane," said Antonio
de Padua Rodrigues, the Unica technical director.
However, the sector's financial hardships also played a
part, with the tumble in sugar prices from highs above 30 cents a pound in 2010
and 2011, at a time of constrained credit, proving a major setback to many
groups, which had ramped up debts in the run up to the world financial crisis.
"In times of crisis, it is natural that mills in financial
difficulty reduce cultivation," besides the maintenance of industrial equipment
and agricultural machinery, Mr Rodrigues said.
'Compromise the grind'
Mills' poor financial health was highlighted earlier on
Tuesday by the International Sugar Organization, which said that "the number of
mills in operation in Brazil is shrinking, the tools available for the government
to help the industry are less evident, and many of the large milling groups are
reporting higher debt".
The ISO forecast Centre South cane output dropping 22m
tonnes to 575m tonnes in 2014-15.
Unica's Mr Rodrigues flagged also the threat of wet weather
ahead, given forecasts for the return of El Nino, the weather pattern linked to
warm Pacific water temperatures which typically causes extreme rains in the
central Brazil cane belt.
"The prospect of more wet weather in the second half," added
to the financial setbacks, "may compromise the grind over the remaining months"
of 2014-15, he said.
Platts Kingsman cut its forecast for world sugar production
in 2014-15, on an October-to- September basis, by 1.5m tonnes to 179.5m tonnes,
putting it behind the 179.9m tonnes expected for the current season.
"The harvests has got off to a good start in Centre South
Brazil, but it is not clear to what extend the previous dry period has damaged
the cane," the Swiss-based consultancy said.