24 July 2014
The Wall Street Journal Website
By Alexandra Wexler
Sugar-industry executives and analysts are calling for the biggest decline in Brazil’s sugar output over a decade. But the numbers coming in from the harvest are showing that the world’s No. 1 producer is churning out sugar well ahead of last year’s pace. What gives?
The apparent paradox can be explained by dry weather in Brazil, where the top-growing regions experienced the worst drought in decades from January through April. Ongoing dry conditions are making it easier for growers to harvest cane, inflating the early harvest totals. The blistering pace of the harvest means that mills are likely to run out of sugar cane to crush far sooner than is typical.
That means Brazil’s sugar harvest will be short, and likely sweet for prices.
Since the harvest began in April through mid-July, mills in Brazil’s center-south region, which accounts for about 90% of the country’s cane, have produced 13.4% more sugar than during the same period last year, the Brazilian Sugarcane Industry Association, known as Unica, said Thursday.
After the Unica report was released, raw sugar for delivery in September on ICE Futures U.S. was up 0.9% at 17.11 cents a pound.
Analysts, executives and some investors say that when the final tally comes up short, prices could quickly bounce back.
Macquarie Group said it’s “getting close to the time to buy” sugar, in a note published this week.
Persistent bulls are one indication that a four-year stretch where the global market was flooded with surplus sugar may be coming to an end. Prices have fallen about 50% since hitting a 30-year high in 2011, as production climbed world-wide, culminating in a record sugar-cane harvest last year in Brazil. Supplies left over from last year are one reason sugar avoided the price spike seen earlier this year in the coffee market, where Brazil is also the top grower.
The drought is expected to change all that. Copersucar SA, Brazil’s biggest sugar grower and exporter, cut its forecast for the current season’s sugar output by 8.6% because of the drought.
“We’re easily a whole cent away from where the sugar should be,” said Hector Galvan, senior market strategist at RJO Futures in Chicago. “Easily by the time we get to mid-, late-August, we’ll see the longer-term turnaround.” He expects the October contract to trade above 18 cents a pound by the end of the summer.
“We’re going to see a market that’s worried about future supply,” Mr. Galvan said.