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Poor weather in Brazil as contract expires

Tuesday, 03 July 2012

 

Prices declined during the first week of this reporting period (18 to 22 June) as the market experienced heavy, volatile trading.

Analysts have noted that sugar is strongly correlated with macroeconomic factors and commodity prices in general and this period was no exception. Keeping with this trend, the July’12 contract climbed back at the end of the fortnight on the back of encouraging political developments in Europe and a rise in commodity prices across the board.

The July’12 contract opened at US20.70c/lb on Monday 18 June and expired at US21.81c/lb on Friday 29 June. 

Poor weather in CS Brazil

Looking at the fundamental market factors, UNICA released a report this period confirming the market’s expectation that poor weather has hampered Brazilian production this season. The report calculated sugar output in Brazil for the first half of June at 1.37 million tonnes, down from 2.02 million tonnes last year, a drop of 32 per cent. In line with the report, analysts also revised their cane estimates for the season downward from 510 to 500 million tonnes and their sugar estimates down from 32.8 to 31.8 million tonnes.

The bad conditions have caused mills to lose ten days of crush and also affected the cane’s quality. Adding to these woes of low production, poor cane quality, and crushing delays is a congested logistics process.

Over two million tonnes of raw sugar is waiting to be loaded onto ships in Brazil and some terminals are booked until the end of July. Congested roads and a truck shortage have added to this worsening supply chain bottleneck.

Despite these negative factors in the world’s largest producing country, the global market is still set to enter surplus in the near term.

July’12 contract expires

The July’12 contract expired at the end of June. Analysts have estimated that 1.1 million tonnes of sugar were tendered for delivery.

The vast majority was from CS Brazil, but some Central American sugar was likely delivered against the contract. Guatemala has produced 200,000 tonnes more sugar this year than expected and as a result some analysts expected a portion of this excess sugar to be delivered to market.

As Greg Beashel notes in his column, we are close to finalising the 2011 season pools.  Expected gross prices on an IPS per tonne basis are:

  • Seasonal Pool - $515
  • Actively Managed - $693
  • Guaranteed Floor Pool - $480