Sugar Prices Break New Lows as Brazil’s Cane Crush Season Opens

(Agrimoney) – Sugar prices are plumbing new lows, as the Brazilian harvest starts up, with expectations that mills will increase production of the sweetener at the expense of ethanol this season.

The season official started up on April, and the pace of crushing and sugar production has already been rapid, with good weather expected for cane crushing this month.

May raw sugar futures in New York are plumbing 11-month lows, at 16.29 cents a bushel.

Sugar over ethanol

“Analyst expectations regarding the upcoming season’s cane crush vary considerably between 570m-620m tonnes,” noted the International Sugar Organisation.

“While some in the industry expect less cane to be crushed compared to last season due to lower field renewal rates, sugar production is widely forecast to grow compared to 2016-17, due to a higher production mix of sugar.”

But equally significant is the fact that for the few mills that have already started up, a considerably higher proportion of the cane crush has been devoted to sugar than at the same time last year, a trend that is expected to continue through the season.

Harvest pressure

And sugar prices in Brazil are already easing on harvest pressure.

“Purchasers were searching for lower prices and found flexibility in agents from mills,” said the Brazilian official research body Cepea

Harvest prospects are so far strong, with dry weather expected this month.

Nick Penney, at Sucden Financial, said that “with weather conditions expected to be largely dry in April, harvesting conditions look to be ideal and the new crop will soon be upon us”.

Mr Penney said some recent strength in the Brazilian currency could encourage mills to put off hedging against the dollar-denominated New York market for the time being, but speculators are already selling down prices.

“The speculative and fund community seems intent on selling on any recovery thus playing the long game, that of a looming surplus next season,” he said.

How much lower can prices go?

The question now is whether Brazilian producers will continue to favour sugar over ethanol.

Tobin Gorey, at Commonwealth Bank of Australia, noted that some investors now seem to believe that “the market is looking too well‑supplied and needs to lose some sugar”.

“The only way that can happen quickly is if Brazilian mills choose to produce ethanol instead of sugar,” Mr Gorey noted.

And he suggested that such a switch to ethanol “will not happen this side of 15 cents a pound”.

Still, Mr Gorey warned that this sentiment is a recent one, “and it will not be the first time that fundamentalists have rationalised rather than prompted a big swing in prices”.

This week broker Marex Spectron also suggested that there is some way to go before mills switch to ethanol.

“Everyone has his own calculation of the parity, but the real one is the level at which Centre South Brazilian mills will in practice, switch from favouring sugar to favouring ethanol production,” Marex said.

“That varies from mill to mill, but we would say that, on present prices, that process will start at about 16 cents a pound, but only cause a significant reduction of sugar production if the sugar price gets down to around 15 cents,” Marex said.