Brazilian sugar and ethanol mills, which have fallen behind due to heavy rainfall, are maximizing cane crushing ahead of the expected arrival of spring rains late this year.

The cane crush is in full swing in the center-south, the main sugar producing region of Brazil, the world's top sugar exporting country. Despite forecasts by several venerable analysts for a major sugar surplus due to hit the market in the second half of 2012, futures prices for the sweetener are up 22 percent since the start of June.

"Brazilian mills are worried about the spring rains and are trying to maximise the crush," said Jonathan Kingsman, head of the Lausanne-based sugar and ethanol consultancy Kingsman SA.

Spring rains typically arrive in the cane belt around October-November and intensify through February. Heavy rainfall in May, June and early July delayed harvesting and, combined with adverse weather in other leading producers, contributed to a rally of raw sugar futures prices to three-month highs this week. Dealers also talked of disappointing yields.

"It's a tight sugar market even now, well into the crushing season," said Tarcilo Rodrigues, lead analyst for Bio Agencia consultants on sugar and ethanol in Sao Paulo.

"We started in April but are roughly 3 million tonnes of sugar behind where we were this time last year."

Rodrigues added, "It's turning into a race against time to get all of the cane crushed before the rainy season returns in force."

If mills maximise crushing and run full throttle, by nature of their capacity and the system of production, they will need to allocate more cane to ethanol biofuel and less to sugar, potentially leaving them with less sugar than they had hoped at the end of the season.

At current high sugar prices, committing more cane to ethanol is less remunerative than committing cane to sugar.

The rains, which have also been disruptive to the flow of sugar out of Brazil, are creating bottlenecks at the main Brazilian ports, with some vessels waiting up to a month to load.

Brazil is also in a busy period for the export of its soy and corn crops through the same ports as sugar flows. Coffee is also in harvest now.

"It is difficult to find trucks and trains to get sugar to the ports," Kingsman said.

The outlook for loading delays would depend on the rate of crushing and on weather, with analysts reporting dry harvest conditions this week and expectations for this trend to continue through the rest of July over the cane regions.

"The weather should be predominantly dry in the main producing areas of the centre-south this week, but in the sugar ports of Santos and Paranagua, it is expected to rain in the next few days," said Marco Antonio dos Santos, a meteorologist with Somar.

A trader said loading delays were longer at Paranagua than at Santos, after sizeable deliveries to Paranagua port against expiry of the ICE July raw sugar futures contract.

Sporadic industrial action by port health and sanitation officials had slowed the movement of ships to some degree, but export shipment authorisations were taking place. And given the period of peak harvest for multiple crops, the wait for ships is not unusually long.

"You are still able to get customs clearance of vessels," one European physical sugar trader said. "The situation seems to be manageable."

"If there is further rainfall, delays will be pushed out even further," the trader said.

source: reuters

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