Forward sales spare Brazil's mills from sugar's dive

Business Recorder (Pakistan)
May 27, 2012 RECORDER REPORT

Brazil's sugar mills have already sold as much as three-quarters of their projected output for this season, far more than a year ago, limiting the risk that tumbling prices for the sweetener will drive them to use more of their cane to make ethanol instead.

New York raw sugar futures plunged below 20 cents a pound this week for the first time in 21 months, raising ideas that mills in Brazil, the world's top sugar producer, might earn more tending to the undersupplied domestic fuel market by making more ethanol. For the moment, the economic incentive is absent: as long as sugar prices remain above about 18.50 cents, selling cane is more profitable than selling ethanol, analysts estimate.

But even a further decline in prices may not prompt the kind of switching that could tighten the global sugar market. There are two reasons: the local currency has been weakening versus the dollar; and mills had already booked large forward sales before sugar prices slumped 25 percent over the past two months.

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