BRAZIL: Czarnikow says rain will boost cane development
Published: 07/16/2012, 11:05:43 AM
Brazil is now in a better position to deliver an improved sugar cane crop, Czarnikow said Monday, as short-term disruption caused by wet weather and crushing delays will help cane development and agricultural performance, according to Dow Jones.
Czarnikow, one of the U.K.'s oldest sugar tradehouses, said its existing forecast production of 505 million metric tonnes of cane could still move higher, despite the country's crush already being around 50 million tonnes behind last year.
"The wet weather in June has pushed up prices and added to the delays to the start of the crushing season; but the extra time can only help agricultural yields and boost the final crop," said Czarnikow director Toby Cohen.
The South American nation is the world's largest grower of sugarcane, which can either be used to make the sweetener itself, or ethanol from fermented juice. However, its growers are struggling to bounce back from a bad crop in 2011/12 and are dealing with rising production costs and appreciating currency.
Following such a slow start, the sector will need to deliver a strong crushing performance in the third and fourth quarters to close the gap on last year, Czarnikow said. It added that weather is a key determinant, with the third quarter looking drier than the preceding one.
Czarnikow said the market is once again pricing in a level of risk as the stuttering start to the Brazilian season has delayed the onset of a surplus in the physical market.
"Prices may have rebounded from recent lows on unexpected weather and logistics risk, but we are confident about our forecast as the longer maturation time will have positive implications," said Czarnikow analyst Peter de Klerk.
Czarnikow said the sector has had no incentive to shift away from sugar and its higher returns, with the season's production mix heavily weighted towards the sweetener. Weakness for the real has boosted sugar export returns in domestic currency, while domestic ethanol prices have remained stable after the Brazilian government increased gasoline prices, but cut taxes.