Brazil Sugar cane

The unexpected June rains in Brazil have meant a delay in the harvest of the crop, and the rallying up of sugar prices. Despite predictions of a surplus for this year, the slight delay in the crop has made market participants nervous, leading to a 22% increase in prices of raw sugar since beginning of June.

October LIFFE No. 5 closed on Monday at US$ 645.60/mt after moderate fluctuations during the day, while Brazilian domestic sugar increased to cUSD 22.20/lb. Raw sugar touched three month highs this week.

The cane crop in Brazil has been underway for almost three months now. Early analysis of the crop condition has revealed lower than expected yield this year. According to the June review of Brazil’s crop by Czarnikow, the cane crushed is around 50 million tons less than last year.

The crushers are in a race against the weather, to get all the cane crushed before the rains return. The deliveries of the crushed sugar were also held up due to the rains, and premiums are being charged for transportation with bottlenecks created at the ports.

On the other hand, hopes of higher cane harvests have also dwindled as the Prorenova program, launched in early January by Brazil’s National Development Bank (BNDES) to fund sugarcane expansion, has not been delivered as promised. The commercial banks, who were appointed as gatekeepers of this program, are overly cautious in their lending this year due to the financial crisis, and have been wary of initiating the Prorenova program.

However, Czarnikow analysts feel that these problems are short-term and there will be no issues with availability of sugarcane this season. ‘We confirm our forecast of 505 million tons of cane, and this number could move higher still,’ they stated. International Sugar Organization (ISO) also expects cane output to rise by 5% this year.

The domestic demand for Ethanol is rising in Brazil in 2012, owing to the flourishing biofuels market. However, the general market consensus is that the increased demand for Ethanol, and sugar demand, can both be accommodated with this year’s crop. ISO forecasted a surplus of 6.5 million tons while Czarnikow has predicted a surplus of 7.8 million tons of sugar for the crop year 2011-12 ending in September.

While wet weather has pushed up the price of sugar in Brazil, drought in other regions is a concern. In India, the delay of monsoon rains has raised concerns about the sugarcane crop this season, leading to a rise in the domestic prices of sugar in India this week.

The main problem for the US beet crop is the heat and the wind. However, a fieldman in the Wyoming Sugar Company fields stated that it looked like a good crop, and above average volumes could be expected. Despite the drought, the beet crop in Buffalo, Riverton, and Worland have survived well.

On the backdrop of unstable commodity prices and uncertainty in global financial markets, the plans of Louis Dreyfus to expand via an IPO in Brazil fell apart. Dreyfus is one of the largest traders of sugar in the world, and was planning to expand its Brazilian unit, BioServ, with the help of an IPO worth $550 million.

Dreyfus has had to borrow $210 million to fund its expansion projects after the failure of its IPO.