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Brazil’s Raw Sugar Discount Narrows as Producers Pull Out Offers

Sellers of raw sugar from Brazil, the world’s largest producer, are putting their sweetener up for sale at a smaller discount as producers pull out offers from the market, according to Swiss Sugar Brokers.

Raw sugar for loading this month at the port of Santos was at a discount of 0.65 cent to 0.75 cent a pound to the price of the March contract on ICE Futures U.S. in New York, the broker said in a report e-mailed yesterday. That compares with 0.75 cent to 0.85 cent a pound a week earlier, data from the Rolle, Switzerland-based company showed. For December loading, the sweetener was offered at a discount of 0.55 cent compared with 0.65 cent a pound the previous week, the report showed.

“Most of the last week’s offers for the nearby as well for the forward have been taken out from the market, symptomatic of less interest from sellers to trade at deep discount for the nearby,” said Naim Beydoun, a broker at the company.

Sugar has fallen 17 percent so far this year as supplies are set to outpace demand for a third year. The global sugar surplus will be 5.9 million metric tons for the 2012-13 season started Oct. 1, according to the London-based International Sugar Organization. That follows a surplus of 5.2 million tons in 2011-12, the sugar group estimates.

“Producers prove not to be in a hurry to chase the market on the downside, particularly when sugar prices are getting close to the cost of production, and to the sugar and ethanol parity,” Beydoun said, referring to the price at which it becomes more profitable for Brazilian millers to make the biofuel at the expense of the sweetener.

Covering Costs

The discount of about 0.90 cents a pound to obtain sugar for loading in November in relation to the sweetener for March is enough to cover storage costs for producers, traders and users, helping support physical prices, Beydoun said. Some traders think there may be logistical constraints to ship sugar from Brazil in December because of competition with grain exports, while others are betting on more imports from India, the second-biggest producer, and China, he said.

“We question the reason behind the long cash traders and producers’ mind-set.” Beydoun said he was anticipating more than 3 million tons of “exportable surplus” of sugar in Brazil in the first quarter. “With demand kept very feeble until now, that should normally start impacting the market,” he said.

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