Armajaro Sees Brazilian Sugar Sales Capping Price Gains

Sugar millers in top producer Brazil have yet to sell on the futures market the bulk of the crop that will be reaped from April, helping to cap any potential long-term price gains, according to Armajaro Trading Group Ltd.

Producers there may have sold a “disappointing” 30 percent to 35 percent of the 2013-14 crop via futures exchanges on average, leaving much of an anticipated record harvest still to be sold, Desmond Monteith, a director of the sugar department at the London-based supplier of sugar, cocoa and coffee, said in an interview yesterday before the start of Kingsman SA’s sugar conference in Dubai today. Brazil’s millers usually would have sold about 50 percent by this time of the year, he said.

Raw sugar fell 16 percent last year and 27 percent in 2011, the biggest two-year loss since 1999. The commodity, which was the third worst performer in the Standard & Poor’s GSCI gauge of 24 raw materials last year, is down 3.2 percent this year. A third year of declines would be the longest slump since 1992. While producers held back from selling because of lower prices, consuming countries including Egypt, Iran, Russia and China took advantage to make earlier purchases, according to Monteith.

“Producers, particularly in Thailand and Brazil, are thought to be under-priced in comparison to end-users, who have taken advantage of the latest price decline,” Monteith said. “End-users have done more buying than producers have sold. There had been talk that there was likely to be a wall of selling from producers around 19 cents to 19.50 cents a pound.”

Thai Crop

Brazil’s center south, the country’s main growing region, will produce a record 580 million to 585 million metric tons of sugar cane in 2013-14, according to Armajaro’s estimates. That compares with 531.9 million tons in the current season, data from industry group Unica showed. Thailand’s crop is forecast at 92 million tons in 2012-13 and is set to expand in the next season, which starts there in November, Armajaro said.

Sugar could still have a “short-term” rally should investors decide to close out bets on lower prices, giving producers an opportunity to sell at a better price, Monteith said. Large and small speculators excluding index funds boosted bets on falling prices by 28 percent this year, U.S. Commodity Futures Trading Commission data showed. Net-short positions were 75,108 contracts as of Jan. 29, the Washington-based commission said in its commitment of traders report published yesterday. That is down from a record net-short of 90,249 contracts a week earlier and up from 58,621 lots at the end of last year.


“There is a school out there that believes that if the market was to start rallying through the 19 cents to 19.50 cents a pound resistance area, you could trigger quite a sizable speculative short-covering move and that might even mean that the speculators go long,” Monteith said. “From the trade point of view, this would be seen as an opportunity to sell the market at a better level. The question is from what level and how far can the speculators lift the market when there’s undoubtedly going to be quite sizable pricing from producers, in particular out of Thailand and Brazil?” he said, referring to hedging.

Global sugar supplies will be at least 8 million tons higher than demand in the current season and another surplus is already forecast for 2013-14, according to Armajaro. The surplus this season could be “significantly” reduced if producing ethanol becomes more profitable in Brazil at the expense of the sweetener and lower prices start spurring demand, he said.

“Our view, from a fundamental and statistical basis, is that we have a substantial surplus and that surplus has to be gotten rid of,” Monteith said. “At the moment, the only cure to that is either lower prices stimulating consumption and/or a switch away from sugar production in Brazil to ethanol.”

Ethanol Production

The outlook for the 12 months starting Oct. 1 will depend on what happens to ethanol production in Brazil and to the crop in India, the second-biggest producer and largest consumer, according to Armajaro. Indian sugar output will likely fall to 22 million tons in 2013-14 from 24 million tons now, Monteith said. The South Asian nation may not need to import for its own consumption because of carryover stockpiles, Monteith said.

“Outside a major unforeseen weather event, Brazil and India are the main drivers that could potentially change the fundamental scenario,” he said.

Raw sugar for March delivery rose 0.6 percent to 18.89 cents a pound yesterday on ICE Futures U.S. in New York.

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