Brazilian sugar output could drop next year

Date:10-13-2010

Sugar output in Brazil could fall next season for the first time in 11 years, because of a hangover from the credit crunch on cane replantings and fertilizer use, FO Licht has warned.

The analysis group, while forecasting a rise of 12.0m tonnes to 166.4m tonnes in world sugar production in the current season, placed a cloud over 2011-12 by warning of, at best, flat output from the worlds top cane grower.

"The [cane] replanting ratio is below normal, we have hard from Brazilian sources," FO Licht analyst Stefan Uhlenbrock told Agrimoney.com.

"We have seen a reduction in plantings in the last two to three years. What we have at the moment in the ground is not optimal."

While cane crops can, in theory, withstand some 10 harvests, their declining yields with each harvest encouraging replanting significantly more often.

Falling production

The crops potential is being further compromised by a dearth of fertilizer use, also stemming from credit issues.

And even if cane production rose, investment in new mills has slumped with 10-12 expected to open in 2010-11, down from annual launch rates of 30-40 before the credit crunch.

The cocktail "could lead to falling Brazilian sugar production next year", Mr Uhlenbrock said. "We could endure a year of stagnation, even if it does not fall."

However, he declined to speculate on whether the squeeze would extend into following seasons.

"You never know what plans are under way. Construction of a new mill is quite quick to do."

Price revival

The comments came as sugar prices staged a recovery, recouping earlier losses to close 3.2% higher at a seven-month high of 27.45 cents a pound in New York, for March delivery.

White sugar for December rebounded to $697.70 a tonne in London, up 3.2%, and having itself reached its highest for a spot lot since February, of $698.30.

Traders have blamed significant volatility in recent days on currency moves, with the dollar falling in and out of fashion, as well as rumours that production shortfalls are forcing Brazilian mills to buyback production.

"Selling has been largely on liquidation and profit-taking, but there has also been some good scale buying by trade and end user," Nick Penney at Sucden Financial added.