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Sugar futures extend muted reaction to 'bullish' Brazil data


Sugar futures extended their somewhat muted reaction to a “bullish” report on Brazilian Centre South sugar output, with strong ideas on foreign supplies, and improved India rain hopes, curtailing enthusiasm.


New York raw sugar futures for October stood down 0.1% at 12.05 cents a pound in late deals in New York, well below an early high of 12.20 cents a pound.


The steep fall from intraday peaks echoed the performance of the last session when, although futures initially soared 2% on data on the Brazilian Centre South cane crush, they fell back to end up only 0.7% higher.


Output tumbles

The data, from industry group Unica, showed sugar output in the Centre South, responsible for more than 90% of Brazilian production, falling by 19.1% to 1.94m tonnes in the first half of July.


That was a more extreme fall even than the 15.7% dip, to 2.02m tonnes, forecast by a poll by S&P Global Platts.


Furthermore, Unica highlighted damage to cane crops from early-July frosts, saying that in some areas, “frost has impacted almost 50% of the cultivated area.


“In our view, the area of ​​mature sugarcane impacted by frost could present an average loss of up to 5 tonnes per hectare in the expected yield for this crop” in affected areas, said Antonio de Padua Rodrigues, the Unica technical director.


Furthermore, the frost may have a knock-on effect on the quality of cane harvested, Unica said, quoting at 400,000 hectares the area of Centre South cane affected by frost, as measured by a survey undertaken with the CTC sugarcane technology centre.


‘Substantial supply elsewhere’

At Sucden Financial senior trader Nick Penney said said “the report was considered bullish given the numbers”.


However, while also noting that “there will be some loss of yield” to frost, Mr Penney said that “but the market seems to have taken this on board and measured its impact against the context of an oversupplied market”.


Ideas of strong supplies have been underlined by the huge delivery, of more than 15,000 contracts of Thai sugar, delivered against expiring August London white sugar futures.


“The trouble is that the market is aware that demand is slack and there is substantial supply elsewhere as shown by the large deliveries against futures markets,” he said..


“It is going to take something more substantial than a frost scare in Brazil to move [sugar] higher.”


Furthermore, October futures gained 3.6% on Tuesday, in anticipation of the Unica data.


Ethanol vs sugar

At Platts, senior sugar analyst Dr Claudiu Covrig said that the 1.94m-tonne Centre South sugar production figure was not such a surprise, given that rains had caused an even larger slowdown in cane harvesting in the first half of July than had been thought.


Unica reported a cane crush of 40.9m tonnes, down 9.5% year on year, and 1.0m tonnes below the figure suggested by the Platts investor survey.


Estimating that mills “lost 1.3, maximum 1.4, days to rain”, he highlighted that “usually when it is raining, mills produce more ethanol, for logistical reasons”, at the expense of sugar output.


He also highlighted strong supplies, saying that Brazil “was the only major producing country where producers seem to have reacted to low prices” by curtailing output.


Age factor

Furthermore, he downplayed the threat from frost damage, noting that cold temperatures are required to stay in place for some time to hurt cane, which had anyway been showing a stronger agricultural yield than last year.


CTC research indicates an increase of 3.0 tonnes per hectare, to 85.7 tonnes per hectare, in the average Centre South sugar cane yield so far this season.


Indeed, following replantings, the average age of cane was lower this season than last, meaning it is less vulnerable to frost too, Mr Covrig said, standing by a forecast for a Centre South crush of 580m tonnes this season, implying an acceleration in the crush in the second half of the season.

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