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Brazil cane harvest slowdown revives sugar futures

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Sugar futures pared losses after industry data showed the cane harvest in Brazil's main growing region slowing, keeping sugar output behind that last year.

Raw sugar for July, which had been trading down 0.7%, recovered to post a 0.6% gain, retaking the 17.00 cents-a-pound mark, after Unica said that mills in Brazil's Centre South crushed less cane in the second half of May than in the first.

At 37.98m tonnes, mills in the region, responsible for some 90% of Brazil's cane and sugar output, processed 2.4% less crop than in the first half of last month.

While sugar output showed a 6.2% increase, as mills switched more production to the sweetener rather than ethanol, the cumulative total for 2014-15 so far remains below that last year.

Centre South mills have produced 5.44m tonnes so far in the season, which started in April, down 3.6% year on year.

And there are concerns that production will continue to lag, with Unica cautioning over a drop in cane yields, and the prospect of this trend continuing.

'Lethargic demand'

However, the rally in futures waned as focus returned to the heavy stocks of the sweetener left over from a successions of years of world production surplus.

"While the lower production should be seen as bullish, the current burdensome supply and lethargic current demand are keeping the upside in check," Sterling Smith at Citigroup said.

"The large supplies and current sluggish demand is keeping prices contained."

July raw sugar futures stood at 16.98 cents a pound in late deals, unchanged on the day.

In London, white sugar futures for August were 0.3% higher at $461.20 a tonne, below a day high of $465.30 a tonne, when the contract was bumping up against its 10-day and 100-day moving averages.

Lower yields

Unica attributed the pullback in cane processing volumes in part to lower crop yields, "mainly due to the drought in the early months of the year" in the Centre South.

Yields so far in 2014-15 have averaged 77.3 tonnes per hectare, down 8.8% year on year.

"In some places the Mid-South this fall in yield was even more pronounced," said Antonio de Padua Rodrigues, the Unica technical director.

Some mills were forced "to reduce the rate of grinding to prevent the advance of harvest over areas of younger cane", less than 12 months old.

The expectation is that this yield shortfall will "persist", and may grow, "especially for cane available for harvest in the last third of the season", Mr Rodriguez added.

Some other commentators have also forecast a decline in cane yields ahead, with London broker Marex Spectron foreseeing that "the cane of which growth was stunted by the drought would only begin to show lower agricultural yields from mid-June onwards".


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