Sugar prices fell to 13-month lows Friday, as traders were spooked by a surprise gasoline price cut by Petrobras and Brazil's larger-than-expected cane crush.
Raw sugar for July lost 3.9% to settle at 15.05 cents a pound on the ICE Futures U.S. exchange, the lowest price since April 2016.
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Brazilian state-run oil company Petroleo Brasileiro SA, known as Petrobras, said Thursday night that it decided to reduce the average price of gasoline at its refineries by 5.4%, a move to win back its shrinking market share in the country's internal gasoline sales.
For the sugar community, this came as a surprise. Lower gasoline prices would further discourage sugar mills in Brazil from producing ethanol, therefore adding to the woes of an already oversupplied sugar market.
"Given the gasoline arbitrage was -12% according to DATAGRO, they should have RAISED prices by that amount," according to Michael McDougall, director of commodities agency at Societe Generale SA. DATAGRO is a Brazil-based agricultural consultancy.
On Friday, Brazil's sugar-industry group Unica said farmers in the country's center-south region harvested 38.46 million metric tons of sugar cane during the two-week period ended May 16.
That came in higher than market expectations. Analysts surveyed by S&P Global Platts estimated that only 36.15 million tons of cane was crushed, as excessively wet conditions would have slowed production.
"Given the well reported weather problems which had resulted in harvest interruptions and created conditions which should have been more favorable to ethanol production, the results had been expected to be supportive to the market," said James Liddiard, an analyst with Agrilion Commodity Advisers, in a note to clients.
Sugar production was 1.7% higher year-over-year at 2.106 million tons, which was above the 1.88 million seen by Platts. During the period, a far higher portion of the cane was diverted to sugar (46.77%) than either expected or was seen this time last year (44.01%).
Broadly, sugar was weighed down by crude oil prices' 4.8% slump Thursday, as OPEC members agreed production cuts fell short of what the market was expecting.
"Unica just added a bit more bearishness to the market," said Claudiu Covrig, a senior analyst at Kingsman, a unit of S&P Global Platts. Given all the bearish fundamental news, "for sure, traders will try to sell into this market," he said.
In other markets, cocoa for July was up 1.8% to close at $1,911 a ton, July arabica coffee gained 1.5% to end at $1.3120 a pound, frozen concentrated orange juice for July added 2% to $1.3860 a pound, and July cotton edged down 0.1% to 77.09 cents a pound.
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(END) Dow Jones Newswires
May 26, 2017 15:03 ET (19:03 GMT)