Sugar may need to drop further to spur millers in Brazil, the world’s largest producer, to make more ethanol at the expense of the sweetener when the 2013-14 season starts there in April, according to Macquarie Group Ltd.
Futures traded on ICE Futures U.S. in New York, down 7.6 percent this year, may need to average 17 cents to 18 cents a pound when sugar cane processing starts in the center south, Brazil’s main growing region, Kona Haque, an analyst at the bank in London, wrote in a report e-mailed today. Sugar for May delivery was down 1 percent at 18.02 cents a pound.
Millers in Brazil use raw material sugar cane to make both the sweetener and the biofuel. The price of hydrous ethanol, the 100 percent biofuel used in Brazil’s flex-fuel cars, climbed above that of sugar on Feb. 7 for the first time since April 2011, according to Kingsman SA, owned by McGraw-Hill Cos. That spurred speculation millers would make more of the biofuel.
“In sugar-equivalent terms, domestic hydrous ethanol prices have now risen above sugar,” Haque said in the report. “But as we are in the inter-crop period, when neither sugar nor ethanol is produced, this higher parity price is not offering support. Sugar may need to average 17 cents to 18 cents a pound once the crush commences to encourage mills to favor ethanol production.”
Hydrous ethanol was yesterday at 19.53 cents a pound, Fabienne Pointier, an analyst at Lausanne, Switzerland-based Kingsman said today by e-mail. That’s 7.3 percent higher than the 18.20 cents a pound that sugar futures were yesterday.
The center south will produce a record crop of at least 580 million metric tons of cane in 2013-14, estimates Macquarie, Australia’s biggest investment bank. Sugar output will depend on how much of the raw material is directed to ethanol production during the season, Haque said. The weather so far “looks promising” for crop development and soil moisture is at 80 percent of the average for this time of year despite drier than average conditions since December, Macquarie said.
“With output much higher in other regions such as North America and China too, we now believe that sugar is headed firmly towards its third consecutive global surplus,” Haque said. “Prices should fall accordingly to 17.5 cents a pound by the second quarter of 2013 to encourage producers to store their sugar, while ensuring consumers boost their demand.”
To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.