Sugar Futures Retreat on Fears of Robust Brazilian Supply

By Carolyn Cui Features Dow Jones Newswires

Sugar futures fell Thursday, as Brazilian sugar mills continued to direct more of the cane toward sugar production.

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Raw sugar for July delivery dropped 1.3% to settle at 15.63 cents a pound on the ICE Futures U.S. exchange.

While Brazil's industry group Unica said in its latest report that the country's sugarcane harvest was off to a slow start, the group also confirmed one of the market's largest fears: the percentage of cane used to produce sugar at mills in the country's key center-south region came in higher than what analysts had expected.

"The effect of the Brazilian sugar mix on sugar production is very significant: it can put the world market into a surplus, balance or a deficit," said Claudiu Covrig, a senior sugar analyst at Platts Kingsman, an agricultural analysis unit of S&P Global Platts.

According to Unica, the percentage of cane used to produce sugar came in at 43% during the reporting period, higher than Platts' forecast of 42.3%. A year earlier, the mix was 42.9% toward sugar.

Sugar prices have been tumbling since early February, losing nearly 30%, as the industry started to expect global supply to outstrip demand in the next season, after a two-year deficit.

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Strong production in countries such as Brazil and Thailand is expected to drive up world output by 6.6% to a record 187.7 million tons, outstripping consumption that is set to expand by 1% next year, the smallest year-on-year increase in seven years, according to Platts, which saw a surplus of 3.138 million tons for the next season.

Brazil, as the world's largest sugar exporter, could swing the market. With 582 million tons of cane, a 2% variation means that Brazil's sugar production could fall in the range between 33.3 million and 36.3 million tons, Platts said.

According to Unica, these mills crushed 24.1 million metric tons of cane in the second half of April, a decrease of 33.5% from the same period a year earlier. They produced 1.1 million tons of sugar, down 38.1%.

In other news, India's Meteorological Department reported that it now expects a further improvement in prospects given that a potential El Nino is less likely to affect rainfall this time. "This seems to justify the government's continued 'wait-and-see' attitude towards further duty free imports of raw sugar and the continued reliance upon stocks before the next campaign," wrote Nick Penney, senior trader at Sucden Financial Research.

"The trade sees the floor for sugar prices as being close to the ethanol parity and that the weather risks are absent from current prices," he added.

In other markets, cocoa for July fell 0.1% to settle at $1,952 a ton, arabica coffee for July was off 1.8% to close at $1.3425 a pound, frozen concentrated orange juice for July added 0.9% to end at $1.45 a pound and July cotton soared 3.5% to close at 79.18 cents a pound.

Write to Carolyn Cui at carolyn.cui@wsj.com

(END) Dow Jones Newswires

May 11, 2017 14:48 ET (18:48 GMT)