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Sugar futures rise, as Brazil mills switch to making ethanol

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Sugar futures gained ground, as industry data showed the sweetener losing favour to ethanol among cane processors - although exuberance was muted by strong cane quality and the prospect of an extended milling season.

New York raw sugar futures for March, which had stood little changed ahead of the data from industry group Unica, stood up 1.4% at 14.19 cents a pound in late-morning deals.

The data showed mills in Brazil's Centre South region, which is responsible for more than 90% of domestic sugar output, allocating 46.5% of cane to sugar in the second half of last month, with the balance going to ethanol.

That figure was down 0.7 points on the allocation in the first half of last month, and a drop of 3.6 points year on year - and indeed represented one of the weakest readings for 2017-18, which started in April.

"Between mid-June and August of this season, the reading surpassed the 50% mark," Unica said.

Crush down

The concentration of sugars in cane processed rose above even the 153.4 kilogrammes per tonne of crop than investors had expected, according to a poll by S&P Global Platts, hitting 159.3 kilogrammes.

That represented a rise of 9.3% year on year.

However, the lower allocation of cane to sugar, coupled with an unexpectedly large drop in cane processing volumes, meant that Centre South sugar output in the second half of last month, at 2.85m tonnes, came in 20,000 tonnes shot of expectations.

Investors had expected a drop in cane crush volumes to 41.55m tonnes "on maintenance stoppages, which are common five months into the harvest season", S&P Global Platts said ahead of the Unica data.

However, cane processing fell even further than forecast, to 40.31m tonnes – down 2.2m tonnes year on year, and a drop of 5.6m tonnes on the crush in the first half of last month.

Seasonal closures

The decline came despite a slow start to the seasonal wind-down for mills, which start closing at this time of year as the Centre South's rainy season looms, bringing cane harvest disruptions and lowering cane sugar levels.

As of the start of this month, eight mills had ceased operations for the season, compared with 18 a year before, Unica said, adding that it was pushing back expectations for shutdown dates for other processors too.

By Mike Verdin

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