Sugar prices recoup losses as Brazil output eases

Sugar prices recouped some losses after industry officials said output of the sweetener in Brazil's main producing region eased further, thanks to rain delays, and highlighted the growing appeal of turning cane into ethanol instead.

Mills in Brazil's Centre South region, responsible for some 90% of the country's sugar output, produced 1.78m tonnes of sugar in the first half of this month, cane industry group Unica said.

While a 30% jump on output in the first half of June 2012, when crushers suffered severe rain delays, the figure was below the 1.85m tonnes produced in the second half of May, and the 2.07m tonnes produced in the first half of May, the strongest period for manufacturing the sweetener so far in 2013-14.

As in late May, "the cane harvest was also hampered in the first 15 days of June by rains that occurred in the major producing regions of the country", Antonio de Padua Rodrigues, the Unica technical director, said.

Ethanol vs gasoline

Besides slowing cane volumes - which came in at 35.1m tonnes, some 5m tonnes less than mills achieved when running at full tilt in the first half of May the rains also lowered the concentrations of sugars in cane.

Sugar levels fell to 125.3 kilogrammes per tonne of cane, from 132.81 kilogrammes per tonne in late May.

The data also showed mills continuing to prioritise producing ethanol over sugar this season, with the proportion turned into sweetener falling to 42.4% from 45.7% a year before.

The fall in sugar prices to their lowest in nearly three years on New York's futures exchange, at a time when Brazil's government has introduced measures to boost domestic ethanol use, is encouraging processors to switch.

'Ethanol is economically viable'

And Mr Rodrigues forecast that this trend would continue, given signals from the transport market, where ethanol is trading at a sufficient discount to gasoline, of roughly one-third, to encourage motorists with flex fuel cars which can run on either product to choose the biofuel.

"Current ethanol prices at the pump indicate that the biofuel is economically viable in relation to gasoline to most of the consumer market," he said.

"The expectation is that the ethanol production in the second half of June will grow significantly as a result of the increase in sales of the biofuel already confirmed in the resale and distribution network."

Kingsman downgrade

The data followed a downgrade by Kingsman to 3.927m tonnes, from 4.591m tonnes, in its forecast for the world surplus in the sweetener in 2013-14.

The downgrade represented a second by the influential consultancy to its estimate for the 2013-14 surplus, from a figure of 6.28m tonnes released in February.

The latest revision, which reflected a cut of 1.1m tonnes to the estimate for Brazilian output, was made at a conference in Switzerland.

However, Kingsman declined to confirm the data to, saying that Wednesday's forecasts were still work in progress ahead of a report due for publication on Friday.

New York raw sugar for October, which fell to 17.16 cents a pound in early deals, stood at 17.33 cents a pound in late trading, reducing its losses to 0.01 cents.

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