Rainy Weather in Brazil Had Delayed Harvest, but Production Has Improved of Late, Relieving Fears of Shortage

NEW YORK—Raw-sugar futures fell 5.9% last week, as production picked up in top sugar-producer Brazil on the heels of unseasonable rains.

Futures prices had rallied 27% from a 22-month low in early June to 23.92 cents a pound on July 20 due to fears the deluge would squeeze supplies from the world's top producer of the sweetener.

But Brazil's sugar industry association, known as Unica, reported last Wednesday that mills in the main Center-South growing region processed 3.9% more sugar cane in the first half of July than in the year-earlier period, a sign that the harvest was recovering after the torrential rains.

"For the first time in this crop [year], the biweekly crush surpassed that of the year-ago period," Unica's interim president, Antonio de Padua Rodrigues, said in a statement.

Sugar production from the crush rose 2% to 2.64 million tons from the same period a year ago, Unica added.

Raw-sugar for October delivery on ICE Futures U.S. settled Friday at 22.52 cents a pound, up less than 0.1% on the day.

The unseasonable, heavy rains in June delayed Brazil's sugar- cane harvest as farmers had trouble entering fields as well as transporting cane.

The delay also caused the sugar content of the cane to deteriorate, industry participants said.

While the improved production numbers relieved some market fears of shrinking supplies, some market participants remained skeptical.

Michael McDougall, senior vice president at brokerage Newedge, said the increased crush momentum won't restore output.

"It's going to be very difficult to meet the big production ideas some people have in their heads, like 32 million tons of sugar or 520 million tons of cane," Mr. McDougall said.

"July is generally the peak month [of the harvest]. The further we go forward the more chance there is of more rain and shutdowns," he said.

Brazil's Center-South still has a long way to go to catch up with last year's crop. Since the 2012-13 season began in April, mills have crushed 170.6 million tons of sugar cane, down 22% from a year earlier. Sugar production has fallen 22% to 9.3 million tons over the same period of time.

As Brazil tries to accelerate production, some traders and analysts said supply pressures will still push prices up.

"I think in the long run we may end up going higher, but we have to go lower first," said Hector Galvan, a senior analyst at R.J. O'Brien Futures in Chicago. "There is more room to the downside here,"

In addition, traders are watching the delayed development of the monsoon in India, the world's second-largest producer of sugar.

"The problem is that the rain is still missing the principal production areas in India," Mr. McDougall said.

India is at a different point in its crop year, where the budding cane needs rain to develop properly.

—Paul Kiernan in Sao Paulo contributed to this article.

source: online.wsj

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