Sugar prices fell to one-year 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 3.1% to 15.18 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 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.
On Friday, Brazil's sugar-industry group Unica said farmers in the country's center-south region would harvest 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.
Sugar came under pressure after 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. "For sure, traders will try to sell into this market."
In other markets, cocoa for July was up 1.8% at $1,911 a ton, July arabica coffee gained 0.8% to $1.3050 a pound, frozen concentrated orange juice for July added 0.2% to $1.3620 a pound, and July cotton rose 0.2% to 77.31 cents a pound.
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(END) Dow Jones Newswires
May 26, 2017 12:04 ET (16:04 GMT)