Sugar prices edged up Wednesday, as a new sugar deal between the U.S. and Mexico helped reduce some of the concerns over a global surplus of the sweetener.
Raw sugar futures for July delivery added 1.1% to settle at 14.14 cents a pound on the ICE Futures U.S. exchange, extending gains for the front-month contract into a third consecutive session.
After a lengthy negotiation, the U.S. and Mexico reached an agreement that reduces the allowed amount of refined sugar for Mexican imports from 53% to 30%, but maintains the access for Mexican sugar to the U.S. market. The deal would essentially reduce the chances that Mexican sugar would be diverted onto global markets, which provided some support to world sugar prices over recent sessions.
Meanwhile, Brazil's Copersucar S.A., one of the world's largest sugar and ethanol producers, reduced its outlook for the country's sugar production in the 2017/2018 crop due to a steep drop in sugar prices, according to Reuters.
The company cut its estimate for Brazil's center-south sugar production to 35.5 million tons from 36 million tons, arguing that mills in the region would switch to produce more ethanol, instead of sugar if the fuel fetches better returns than the sweetener.
Brazil, as the world's largest sugar exporter, could swing the global market from surplus to deficit. With 582 million tons of cane, a 2% variation means Brazil's sugar production could fall in the range between 33.3 million and 36.3 million tons, according to S&P Global Platts, which sees a surplus of 3.138 million tons for the next season.
However, "unfortunately for the bulls, sugar is not receiving much support from other markets," said James Liddiard, an analyst with Agrilion Commodity Advisers, in a note to clients on Wednesday. A further rally of sugar was somewhat uncertain, as the Brazilian real was weakening, crude and most of the soft commodities all lowering, and the hydrous parity price in center-south Brazil having fallen to 12.90 as of Tuesday night's close, he added.
Despite the lower projections for Brazilian sugar output, India, the world's second largest sugar producer, is now seen increasing its output.
The Indian Meteorology Department raised its monsoon rainfall forecast for this year to 98% of the 50-year average, which improves the chances that both this season and next season's Indian sugar production will come in above 25 million tons, according to Kamal Jain Trading Services Pvt. Ltd. in India.
In other markets, cocoa for July fell 0.6% to settle at $1,963 a ton, arabica coffee for July added 0.2% to close at $1.2575 a pound, frozen concentrated orange juice for July fell 0.5% to $1.3190 a pound and July cotton fell 0.3%, settling at 75.79 cents a pound.
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(END) Dow Jones Newswires
June 07, 2017 14:51 ET (18:51 GMT)