Sugar prices recovered despite downbeat comments on Brazilian production data and a caution that the low ethanol prices, expected to stimulate demand for the biofuel, have lower the floor for values of the sweetener.
Raw sugar futures for October delivery stood 1.2% higher at 16.33 cents a pound in midday deals in New York on Thursday, reversing losses of the previous sessions.
The rebound came despite negative reaction from brokers such as Sucden Financial to data released late on Wednesday on sugar production in Brazil's key Centre South region, showing that output had, in the first half of this month, hit its highest levels of 2013-14.
"The market is surprisingly steady after the release of what we felt were bearish numbers," Sucden senior trader Nick Penney said.
"What caught the eye was the mix" of cane converted into sugar, rather than ethanol, which rose to 45.4% from 41.9% for the second half of June.
Mr Penney said: "This can of course change, but the trend seems to have reversed from early in the crop in favour of sugar," with extra supplies of the sweetener pressing on prices.
Competition for cane
Wednesday's sugar report, from cane industry group Unica, also took an upbeat view on ethanol demand, highlighting a "surprising" rise in consumption of the hydrous variety, used by flex fuel cars as an alternative to gasoline.
Prices of hydrous ethanol had fallen below 65% of gasoline prices in Goias and Sao Paulo states, and fallen below 60% in some cities, a decline which will Unica said would "stimulate demand" of the biofuel.
However, separately, Job Economia cautioned that declining actual ethanol values had been behind the low price compared with gasoline - a factor negative to sugar prices in lowering the level at which mills will shut off production of the sweetener in favour of making biofuel.
"The price support that hydrous ethanol has been providing for export sugar ceased as from the second half of June," the Brazil-based consultancy said, adding that this had let international prices "searching" for a floor between 15-16 cents per pound.
"The minimum support price of ethanol for raw sugar was 15.45 cents per pound in the last week."
'Prices have now bottomed out'
However, ABN Amro, in a quarterly report, sounded a more bullish note on sugar prices, estimating that they will end the July-to-September quarter at 17.40 cents per pound.
The forecast reflects a calculation that the parity price for sugar and ethanol, when it makes equal financial sense for mills to produce either, is actually "slightly below 17 cents a pound" in sugar terms.
"Sugar prices have now bottomed out," the broker said.
Demand from the ethanol market, "coupled with the current low sugar prices, will rein in the sugar production growth seen in the past few seasons", ABN analyst Mathijs Deguelle said.
"While over the past few weeks, there have been predictions that sugar will fall to the 15-cents-a-pound range, we believe this is unlikely."