Brazilian Dryness Seen by Alta Mogiana Cutting Sugar-Cane Crop

(Businessweek) – Persistent dry weather in Brazil’s center south, the main sugar cane-growing region of the world’s top producer, will probably cut output for the crop that starts at about April, according to Usina Alta Mogiana SA.

Growers may harvest less than the record 594 million metric tons gathered last year, Marcos Mine, a risk manager at the miller in Sao Joaquim da Barra in Sao Paulo state, said by e-mail today. Cuts to output, currently estimated at about 5 percent, may be bigger if dry weather persists, according to the miller, which processed 5.7 million tons of cane last year.

“The dryness is starting to get more serious and people have started talking about potential reductions to their forecasts,” Mine said. “In our region, we only got a third of the normal amount of rainfall last month and how the crop will turn out will now will depend on when the rain returns.”

Raw sugar futures rallied as much as 4.9 percent on Jan. 31 on speculation dry weather would cut production for the current season. The price, which declined in the past three years as supplies outpaced demand, climbed 1.3 percent today to 15.75 cents a pound, the highest for a most-active contract since Jan. 9.

Brazil’s southeast region, where most of the country’s sugar cane grows, got 75 millimeters (2.9 inches) of rainfall in January, according to weather forecaster Somar Meteorologia. That compares with a historical average of 275 millimeters, said Celso Oliveira, a meteorologist at the Sao Paulo-based company. The region is currently forecast to receive 100 millimeters of rain this month, about 40 percent of the historical average.

Crop Impact

Prolonged dryness in the next two-to-three weeks could have a “more significant” impact on the crop, Tom McNeill, a director at Brisbane, Australia-based researcher Green Pool Commodity Specialists, said in a report e-mailed today. Some traders are betting on a production drop of one to two percent, according to Arnaldo Luiz Correa, a director at Sao Paulo-based Archer Consulting. Yields will probably only decline from now, broker Marex Spectron Group said in a report e-mailed today.

Sugar production will probably fall at a faster pace than ethanol output if crop losses exceed 5 percent as millers focus on supplying the domestic fuel market, Alta Mogiana’s Mine said. Production units that extended last year’s processing into January will probably struggle for raw material this year, as recently cut cane plants will not have received enough rain to regrow.

“The current environment is bullish for prices, especially in the short-term,” Mine said. “In the medium-term, if it rains, the market may calm down as humidity may help recover part of the fields. At the moment, I think it will be very difficult for this year’s crop to reach a new record.”