The sugar cane crop in Brazil’s Center South, the main producing region of the world’s largest grower, is forecast to be 500 million metric tons in 2012-13, according to Macquarie Group Ltd. (MQG)
That’s down from the bank’s earlier estimate of 520 millon tons and little changed from the 494 million tons reaped in 2011-12, according to a report e-mailed today. Dry weather in the Center South has reduced the prospects for a meaningful recovery, London-based analyst Kona Haque said in the report.
The cane crop in the Center South region fell for the first time in a decade in 2011-12 after drought, frost and flowering cut yields, according to industry group Unica.
Weather data shows that producing areas such as Sao Paulo, parts of Minas Gerais and Aracatuba received less than 50 percent of the average amount of rainfall in February and March this year at a crucial time for cane development, according to the report.
“In the southern region of Mato Grosso do Sul and the Maringa region of Parana state, low rainfall has impacted yield output, causing, in some cases, irreparable damage to the cane crop,” Haque said, adding a drier-than-normal April has been forecast.
Most sugar mills in the country are expected to start crushing by late-April, later than normal in the month.
“For the new season, we are expecting mills to continue to favor sugar production over ethanol” with the former currently remunerating some 25 percent more in returns, Haque said. Mills in the country use the raw material to produce either sweetener or ethanol.
“The concerns over the Brazilian crop are causing the New York front month May 2012 contract to rally ahead of forward contracts,” according to the report. “The risk premium associated with the Brazilian crop under-performing again saw speculators increase their net-long position on ICE last week by more than 30,326 contracts.”
Price rallies may be capped at 26 to 27 cents a pound, with the most bullish contract being May 2012, when supplies will be the tightest, the bank said. It sees the bottom of the market at 21 to 22 cents in the third quarter, according to the report.
“The outlook for prices for the 2012-13 October to September season are slightly better, as production growth will likely slow, causing the surplus to shrink further,” the bank said.
The global sugar surplus is seen at 5.5 million tons for the October 2011 to September 2012 year, down from a previous forecast of 7.9 million tons, according to the report.
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