Sugar hits 6-year low, as Green Pool ups output forecast

(Agrimoney) – Sugar prices fell, hitting a six-year low at one point, as Green Pool slashed by 2m tonnes its forecast for the world production deficit next season, citing sharply improved prospects for Brazilian production.

Raw sugar futures for May stood at 12.07 cents a pound in late morning deals in New York, down 0.5% on the day, earlier touching 12.00 cents a pound – the lowest for a spot contract since January 2009.

The modest performance was attributed to ideas for ample supplies of sugar which gained momentum with a forecast from Green Pool that a period of world production surplus stretching back to 2010-11 would end next season in a less dramatic fashion that it had previously expected.

The Australia-based group cut to 2.063m tonnes raw value, from 5.023m tonnes, its forecast for the world sugar output deficit in 2015-16.

Green Pool also nudged higher by 10,000 tonnes to 1.739m tonnes its estimate for the surplus this season.

Sugar vs ethanol

The group said that its 2015-16 deficit downgrade reflected in the main an increase of 2.1m tonnes to 32.5m tonnes, on a tel quel basis, in its forecast for output in Brazil’s Centre South region, responsible for some 90% of the country’s production.

The “massive devaluation” this year in the Brazil real, which has lost some 18% against the dollar so far this year, “places sugar production at a much bigger advantage than that of ethanol”, Green Pool said.

Brazil’s sugar, unlike its ethanol, is produced mainly for the export market, unlike its ethanol, and becomes more competitive to foreign buyers as the real depreciates.

“It seems very likely to ensure higher sugar production at the expense of ethanol.”

‘Little out there for the bulls’

The group also raised by 10m tonnes to 580m tonnes its estimate for Centre South cane production in 2015-16, citing recent rains, which have eased worries over dryness seen earlier in 2015.

The upgrade tallied with broader market talk, with broker Sucden Financial on Monday underlining talk that prospects “for the start of the Centre South campaign are rather good, alas, as we have had rains good enough to provoke some analysts to increase their projections for the sugar yield.

“It still seems there’s little out there for the sugar bulls again at the moment.”

London-based broker Marex Spectron said: “the rains have been, and are still… good.

“Rain is never bad for cane.”

‘Distinctly bullish’

Green Pool also upgraded by 800,000 tonnes to 25.5m tonnes its forecast for Indian sugar output next season, citing elevated cane prices, which are set by the state.

But the upgrade was more than offset by a cut to 1.1m tonnes to 10.5m tonnes in the estimate for Chinese output.

Marex reported talk from a conference in Nanning that China’s output would fall below 11m tonnes this year, “due to lower acreage and lower yields”.

China was one country where “the outlook for the future is distinctly bullish”, Marex said, noting that the cost of producing sugar is estimated at about 5,000 remninbi per tonne, “ie some $250 per ton above the present world market.

“China is therefore building new refineries rather than sugar factories, accepting, intelligently, that it will be far cheaper to import than to grow sugar.”