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Brazil sugar's 'sudden death' arrives - too late to lift prices

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The long-forecast "sudden death" in Brazilian sugar production has begun to show up in industry data – but too late to bolster futures, which headed in New York for only modest gains.

Sugar output in Brazil's Centre South region, responsible for some 90% of domestic output, came in at 1.21m tonnes for the first half of this month, industry group Unica said.

That represented a plunge of 41% from output in the second half of October, and a 39% decline year on year.

Cumulative Centre South sugar output so far in 2014-15, which began in April, reached 30.71m tonnes, down nearly 1m tonnes year on year.

Ethanol vs sugar

The decline reflected in part the appeal to mills of producing ethanol, rather than sugar, at current price levels, with just 40.3% of Centre South cane turned into the sweetener in the first half of November, down 7.6 percentage points year on year.

The data "make it clear that more of this year's harvest will be turned into alcohol", said Antonio de Padua Rodrigues, the Unica technical director.

However, the drop also reflected a slump in the volume of cane processed to 23.1m tonnes in the latest period, down 33% on the crush in the first half of November, and a decline of 28% year on year.

Investors have long expected a sharp tail-off in cane volumes, as the impact of a persistent drought in the Centre South this year takes hold, conditions which have made for a speedy cane cutting, but lower yields – implying a premature end to harvesting.

Market reaction

Indeed, Mr Rodrigues said that crop losses had "begun to show up in this fortnight, the first time that the cumulative amount of sugar cane processed fell short of the volume seen a year before".

The trend was also evident in the number of mills that had closed for the season by mid-November, at 82, roughly one-quarter of the Centre South total, compared with 31 a year before.

However, with harvest anyway expected to show a seasonal decline this month, into December, before the onset of seasonal rains which hamper fieldwork, futures showed little reaction to the data.

Earlier in the day, Tobin Gorey, at Commonwealth Bank of Australia, had said that whatever the data had shown, "given it is so late in the crush [season], the impact [on prices] will be modest at most".

In fact, raw sugar futures ended up falling into negative territory in New York before a late recovery dragged them to 16.01 cents a pound in closing deals, a gain of 0.01 cents on the day.

The drought will have a longer-term impact on Brazil Centre South sugar production, in reducing volumes of so-called cane which go unharvested this season, and are held over to next season.

This year saw significant volumes of this so-called standover cane, a factor which has helped to offset yield losses to drought.


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