Sugar prices ease, despite 2015 fears for Brazil

(Agrimoney) – Sugar prices fell despite a caution from Datagro that sugar production in Brazil’s key Centre South region could fall for two successive seasons for the first time in nearly 30 years thanks to drought damage to cane.

Raw sugar futures for March delivery stood 1.4% lower at 16.44 cents a pound in early deals in New York, falling back below their 10-day moving average.

The decline came despite a 700,000-tonne downgrade to 31.6m tonnes late on Monday by Datagro, the Brazilian analysis group, in its forecast for sugar production this season in the country’s key Centre South region.

And it warned of a further drop next season in output from the Centre South, responsible for roughly 90% of Brazilian sugar production, to 29.1m-31.3m tonnes.

Drought damage

That would represent the first time since the mid-1980s that Centre South output has fallen for more than one year in a row.

The forecast reflected the impact of the worst drought in at least a century in Sao Paulo state, at the core of the Centre South, and surrounding areas, Plinio Nastari, the Datagro president, said.

One impact would be to lower by 17m tonnes the level of so-called “standover” cane, which producers have been unable to harvest, carried over into 2015-16, Mr Nastari said.

Some cane has been lost to drought. However, the dry weather has also allowed accelerated fieldwork this season, likely leaving less cane unharvested, albeit with the crop coming in at lower yields.

‘Long way to go’

However, many investors proved cautious about 2015-16 forecasts made so far in advance.

“It may well prove right. But there is a long way between now and then,” a European soft commodities trader said.

“I think people will be reluctant to trade on Centre South prospects so far in advance. There are a lot of other factors to get through first before getting to the next cane harvest [there].”

Forecasts of rain for the Centre South, potentially signalling the start of a seasonally wetter period, also reduced some of the anxiety over next year’s prospects.

MDA forecast falls of up to 2.5 inches in central Brazil, in a belt stretching from southern Minas Gerais – the top coffee-producing state, where rainfall prospects depressed bean prices further on Tuesday – to Mato Grosso, the Brazil’s biggest soybean-growing state.

Chart signals

At Sucden Financial, Nick Penney also noted negative technical signals for the sugar market, and the selling that met an upward tick in prices in the last session on news of a fire at a warehouse operated by Cargill and Biosev.

“This morning, after opening unchanged and posting a high so far of 16.70 cents a pound, values have retreated sharply and broke through the nearby support at 16.52 cents a pound,” he said.

Having broken through technical floors at 16.46 cents a pound, and 16.43 cents a pound, the next levels of potential support appear at 16.28, 16.00 and 15.90 cents a pound.

“We continue to believe lower levels will be tested and see no constructive fundamentals to help the market upwards,” Mr Penney said.