Sucden Financial - despite raising, again, its forecast for the world sugar surplus in 2017-18 - raised hopes of an end to the slump in sugar prices, which saw them touch a fresh 15-month low.
The commodities trading house - which in March pegged the world sugar production surplus in 2017-18, and last month raised the estimate again to "about" 3m tonnes – on Wednesday forecast a figure of 3.5m tonnes.
The revision reflected a small downgrade, to "almost" 180m tonnes, in the estimate for world consumption over the season, although that represents a rise of 2.5m tonnes year on year, an acceleration after a "temporary 2016-17 slowdown in India and China" in 2016-17.
A surplus of 3.5m tonnes in 2017-18, on an October-to-September basis, would more than make up for the 3m-tonne world output deficit Sucden estimated for 2016-17.
Nonetheless, the group was, despite forecasting richer sugar supplies, tempered in its pessimism over futures after their "pronounced weakness" since February, with New York raw sugar futures losing more than 30% over the last four months, on a spot contract basis.
Sucden instead issued a "more rangebound" forecast for futures, reflecting largely the impact of price swings in incentivising processors, largely in Brazil's key Centre South region, to turn cane into ethanol, when sugar values are low, or the sweetener itself if prices rise.
"The flat price could find more support from current levels as any further decrease in prices would accelerate the switch to ethanol in Centre South Brazil," the group said, adding that "such a switch could start in Thailand and the European Union too".
"On the other hand, a price recovery would allow the sugar mix in Centre South Brazil to reverse back higher."
Sucden pegged so-called "ethanol parity" – at which mills have an equal incentive to produce either sugar or ethanol from cane – at about 13 cents a pound on a sugar basis.
The group added that its "more rangebound view still has a bearish bias, however", reflecting uncertainty over the potential for Indian and Chinese imports.
The comments came as raw sugar futures for July touched 13.36 cents a pound, the lowest for a spot contract since February last year, before recovering some ground to stand at 13.78 cents a pound in late deals a drop of 0.1%.
Sucden's increase to its forecast for the world production surplus next season came despite some downgrades to output estimates for major producing countries.
The forecast for Australian output was trimmed by 200,000 tonnes to 4.6m tonnes, and for India by 300,000 tonnes to 24.5m tonnes, while the Centre South production estimate was also cut by 300,000 tonnes, to 34.9m tonnes.
The group noted that April and May had been "both much more rainy than normal" in the region, with 15 days of crushing lost, compared with a more typical eight days.
However, in its first forecast for 2018-19, it pegged Centre South sugar output bouncing to 36.5m tonnes.
By Mike Verdin