DJ Brazilian Sugar Trade Focuses On Domestic Market

SAO PAULO, Feb 04, 2009 (Dow Jones Commodities News via Comtex) -- Brazilian sugar and ethanol mills have been largely selling their physical sugar in the domestic market this week, industry contacts said Wednesday.

The March sugar contract finished down 7 points at 12.59 cents a pound Wednesday on ICE Futures U.S.

"This week the export market has been quiet, with most of the focus on selling sugar to the Brazilian sugar industry," said a trader at a major U.S. sugar exporter based in Sao Paulo.

Brazilian sugar mills have been booking good profits this week, selling at around 45 Brazilian real ($19.4) per 50-kilogram bag, which is above export prices, the trader said.

These high prices for sugar in the Brazilian market should remain until the inter-harvest ends in mid-April, when the supply of sugar will begin to improve, the trader said.

A broker at a Sao Paulo-based brokerage agreed that mills have preferred to sell their sugar locally.

He said that mills could sell, for instance, at around 16 U.S. cents per pound in Minas Gerais state or 14 cents per pound in Sao Paulo state. This produces a better profit than selling for export, he said.

A trader at a major European sugar exporter said that export trade for very high polarization sugar, or VHP, was "almost dead" this week.

The trader said, however, that some demand has developed recently for Brazilian sugar from markets such as Indonesia, the Far East, west Africa and China.
This sugar trade would have previously been supplied by Indian sugar exporters, he said.

Guilherme Nastari, a consultant at Brazilian consultancy, Datagro, said the world deficit of sugar should be between 3.3 million metric tons and 3.5 million tons in 2009 largely due to less sugar from India and this is helping to drive prices upward.

Brazilian mills can break even at about 11.2 cents per pound, with an exchange rate of one dollar for 2.30 Brazilian reals, Nastari said.

A broker in Sao Paulo said that on Wednesday that VHP buyers were asking for 35 points under a March sugar futures contract on ICE, while sellers were asking for 25 points under the same contract.

In the Brazilian futures market, a Sao Paulo broker said that around 20% of the new Brazilian 2009-10 sugar crop has already been sold.

The broker said that mills and traders in Brazil have been fixing sugar futures contracts on ICE at around 12.50 cents and up to 13 cents per pound.
Many are taking a wait-and-see approach because they believe prices can rise to 13 cents per pound or above in 2009.

Around 40 mills are expected to start crushing in March, said a broker. These mills have a shortage of working capital and will therefore start crushing as early as possible, he said.

Brazil is the world's No. 1 exporter of sugar.