Rabobank blurs forecast for rise in Brazil’s 2015 cane crop

(Agrimoney) – Rabobank broadened its forecast for the cane harvest in Brazil’s Centre South region next year as it flagged “uncertainties” over prospects, noting the “critical financial situation” among mills, of which more closures are expected.

Rabobank, which earlier this month forecast a Centre South cane harvest in 2015-16 of 575m tonnes, on Tuesday said that it was “currently working with a range of possibilities” for the crop, ranging from 550m-580m tonnes.

The wider range puts a potential drop in output on the cards, from the 560m tonnes or so expected for 2014-15.

The bank highlighted “uncertainties” presented by a Centre South industry, responsible for some 90% of Brazilian cane and sugar output, which has seen an end to the drought which persisted for much of this year, but is dogged by poor finances.

‘Critical financial situation’

“After some very dry months, rains have finally returned to the main producing regions, easing the drought stress in the cane fields that will be harvested in 2015,” the bank said.

“On the other hand, the critical financial situation of many mills resulted in lower levels of cane renovation in early 2014, along with lower input use.”

Both factors – an increased cane age profile, and lower nutrient use – imply weaker yield potential.

Rabobank also hinted at the potential, given the falling oil price, for an increase from the current season’s 43.5%, a six-year low, in the proportion of Centre South cane being processed into sugar rather than ethanol.

“Without major changes in the structure of gasoline and ethanol pricing,” with the former regulated in Brazil, “mills will have little incentive to maximise ethanol production at the expense of sugar production.”

Mill closures imminent

The comments follow cautions from both Czarnikow, the London-based sugar merchant, and Brazil-based industry group Unica that the Centre South faces nine mill closures during the newly-started off-season for crushing.

The closures will add to the 60 mills that have already shut over the past decade, with openings slowing to seven in the past four seasons.

However, the groups signalled different outlooks for Centre South cane prospects next year, with Unica foreseeing “more positive market conditions” for mills, thanks to the potential for a slip of the world industry into a production deficit, implying price support.

Czarnikow, though, highlighted “limited upside” next season for cane output, hurt this year by an unusually persistent drought.

‘Pressure on prices’

Rabobank also trimmed by 100,000 tonnes to 1.8m tonnes its forecast for a world sugar production deficit in 2014-15, noting improved prospects for Indian output.

The bank failed to offer any fresh forecasts for sugar futures, which it at the start of the month rated as the third most bullish prospect in agricultural commodities for 2015, behind live cattle and cotton.

However, it noted that “negative fundamentals plus global macro developments continue to exert pressure on sugar prices”.

Given a succession in global sugar production surpluses ahead of this season, “it hardly matters whether the outlook for the global supply/demand balance is a modest surplus or a modest deficit, as the burden of stocks on the market will be similar in both cases”.

Raw sugar futures for March stood 0.1% higher at 14.88 cents a pound in early deals in New York.

The lot last week set a contract low of 14.67 cents a pound.