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LONDON, June 12 (Reuters) - Drought in the world's biggest sugar
producer Brazil, if prolonged, could help drive world sugar prices
significantly higher, European traders and analysts said on Monday.
Sugar futures soared to 17-month highs on Friday with benchmark
July raws in New York (SBN0) finishing at 8.57 cents a lb with 10.00
cents now seen as a likely target. "The motor is
Brazil," Robin Shaw of internet commodity trading exchange
Comdaq (www.comdaq.net) said in a weekly report.
Analysts added that lower EU and Australian output combined with
higher than expected Russian purchases and expectations of China's
return to the market next year were also raising bullish
expectations.
Brazilian sugar areas are not expected to see rain until the end
of July, he said, adding, "The crop, already small and low
yielding, is getting worse."
Each additional day of drought was resulting in lost sugar
tonnage due to shrinking cane crushing yields, he said.
The U.S. Department of Agriculture (USDA) last month forecast
Brazilian sugar output falling to 14.5 million tonnes in 2000/01
(May/April), from 19.7 million last season.
European analysts said that although Brazilian sugar forecasts
had been revised down, the main potential impact would be on next
season's crop."The timing of the Brazilian drought is not so
drastic because they're already harvesting," Neil Meader, sugar
analyst at trade house ED & F Man told Reuters.
But he warned, "If conditions don't improve, next season's
crop could be hard hit." In addition, dry weather is
delaying and could possibly prevent replanting of cane which due to
low world prices has lagged behind schedule. At least 15 percent of
the cane area needs to be replanted this year.
BRAZILIAN EXPORT RATIONING ?
Shortage of Brazilian white sugar exports, partly due to a
sharply reduced crop and partly because of attractive internal
prices and a firm alcohol market, have fuelled the price rise.
Brazil's agriculture minister Vinicius Pratini de Moraes said
recently in New York that the country's sugar exports would halve to
six million tonnes in 2000/01 from last season. Some traders believe
exports could be even lower.
"Millers have been able to meet short-term cash flow needs
through spot alcohol sales," Meader said. Traders said
that Brazilian millers were holding back exports.
"Brazilian producers are clearly carrying out a concerted
and deliberate non-selling policy," Shaw said.
Thailand's success in rationing supplies served as a model,
although with barely a dozen millers concerted action is much easier
than in Brazil where there are nearly 200 Brazilian millers.
"It took the market time to wake up to the significance of
such a drastic fall," Shaw told Reuters. But Indian
exports are one potentially bearish cloud.
Saddled with stocks of 8.5 million tonnes and prospect of another
big crop, the Indian government last week offered an incentive to
sell sugar to neighbouring countries.
Traders estimated that nearby white sugar futures would have to
rise above $250 to make Indian exports worthwhile. This looks
increasingly likely with benchmark August (LSUQO) on Monday around
the 17-months high of $238 a tonne.
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