Sugar futures jump on – another – Brazil downgrade

Sugar prices jumped 5% after Kingsman joined analysis groups cutting forecasts for Brazil’s sugar output, blaming the age of the cane following two years of low replanting rates.

The influential consultancy cut by 35m tonnes to 525m tonnes its forecast for cane output in Brazil’s Center South region – the top producing area in the main sugar-producing country.

Sugar production was pegged at 31.9m tonnes a figure which, while higher than a 30m-tonne estimate on Thursday from Brazilian consultancy Canaplan, was below the benchmark figure of 32.4m tonnes set by Unica, the cane industry group, last week.

Kingsman’s stance was also viewed with particular interest as it has been one of the more upbeat on hopes for the world sugar production surplus in 2011-12, earlier pegging it at 10.6m tonnes.

‘Terrible shape’

At Macquarie, analyst Kona Haque said: "The downgrades to Brazilian estimates keep on coming.

"Our colleagues in Brazil say the cane is in terrible shape. It is old, and is not going yield any better going forward," leaving the country on track for its first drop in production in a decade.

Brazil, which is also the top sugar exporter, "is likely not crushing fast enough to satisfy importers."

While Macquarie estimates the world surplus at 5m-6m tonnes in 2011-12, the impact of this in extra supplies from alternative producers such as India was not likely to be felt until November at the earliest.

Raw sugar for October hit 31.55 cents a pound in New York, a contract high, and the best price for a near-term lot since February, before easing to stand at 31.46 cents a pound in late deals, up 5.4%.

In London, white sugar for October closed 4.0% higher at $812.70 a tonne.

Feeling the cold

Kingsman attributed its downgrade to concerns that "the effect to two consecutive years of low renovation rates" in Center South cane planting was "stronger than expected".

Indeed, the low level of resowings – a hangover from the global economic crisis, and its impact on sugar enterprises with stretched balance sheets – "may be exacerbating the impact of the recent frost affecting certain planting areas".

The group noted that this was the second season when a lack of cane, rather than milling capacity, had limited Brazil’s sugar output, highlighting too that concentrations of sugar per kilogramme of crop were among the lowest of the last decade.

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