Sugar futures hopped between positive and negative territory after Unica, in a long-awaited move, cut its forecasts for Brazil Centre South sugar output – to a level expected by the market – and a huge delivery against futures left investors non-plussed.
The Brazilian cane industry group estimated the cane crop in the Centre South, responsible for some 90% of domestic output, at 587m tonnes.
While down 2.6m tonnes from Unica's previous forecast, issued in April, the figure was larger than that forecast by many other commentators, with Czarnikow and Kingsman last month pegging the harvest at 585m tonnes, and Datagro in August cutting its forecast to 584.8m tonnes.
Although the cane harvest has suffered some setbacks from frost and wet weather, yields have been promoted by weather which has proved benign for crop development, and by the areas of young more productive cane, after replanting campaigns.
Sugar vs ethanol
For sugar, Unica made a relatively deeper cut, lowering its production estimate by 1.3m tonnes to 34.2m tonnes.
The content of sugars in cane had fallen short of initial expectations thanks to frost, the spread of mechanised harvesting, which is deemed to give less optimal results than manual cutting, and wet weather in May and June.
Furthermore, thanks to low sugar prices, mills "until August prioritised the production of ethanol" rather than the sweetener from cane, Unica technical director Antonio de Padua Rodrigues said.
Even when exchange rate movements reduced the appeal of making ethanol, "the proportion of cane intended for the manufacture of sugar has fallen short of that recorded in the last two vintages".
The estimate for sugar output was a touch higher than the 34.1m tonnes forecast by Czarnikow and Kingsman, and well above a figure of 33m tonnes from Canaplan, but bang in line with the estimate from Datagro.
'Bullish or bearish?'
The initial impact on futures was to see New York's March contract, in its first day as the spot lot, gyrate between positive and negative territory – with uncertainty further increased by confirmation of rumours of a huge delivery, of 1.49m tonnes of sugar, taken against October futures as they expired on Monday.
Louis Dreyfus was revealed as the sole receiver of the sugar, from 29,344 expiring contracts, and the biggest delivery since at least 1999.
"'Is it bullish or bearish?' we have been repeatedly asked," said Thomas Kujawa, co-head of the softs department at Sucden Financial.
"Judging that we are unchanged so far, it seems the jury is still out."
March futures in fact stood down 0.01 cents at 18.13 cents a pound in the immediate aftermath of the data.