Brazil's Sugar Trade Slow: Mills Start Harvest

Brazil's sugar markets saw a trickle of trade this week with few buyers interested in sugar from cash-strapped mills, industry participants said Wednesday.
Nearby May sugar on ICE Futures U.S. was up 6 points to settle at 12.73 cents a pound after giving up early gains on profit-taking, weakness in key commodities and a rally in the U.S. dollar.

One U.S. dollar was at 2.28 Brazilian real on Wednesday, from around BRL2.30 on Tuesday, doing little to stimulate Brazilian sugar exports.
"We saw some trade as sugar tries to break 13 cents per pound during rallies, with some producers willing to sell and mainly speculators buying," said Alex Oliveira, a sugar broker at Newedge USA in New York.

Brazil's sugar trade, overall, remains slow with little interest from buyers in Brazil or abroad, he said. This should change in the second half of 2009 when such countries as India, China and Russia will have burned through their stocks. "Then they will start buying," Oliveira said.

Buyers were asking for discounts this week for very high polarization sugar, or VHP, of around 45 points under the ICE May contract, said a broker at Uniao Corretora, while sellers wanted 50 points under the same contract.

The broker said that this year many mills are desperate for income to pay debts or bills, and needed to begin cutting their cane earlier. This puts pressure on the sugar and ethanol prices, he said.

Brazilian mills in the main center-south sugarcane region usually start harvesting in April and May. Around 35 mills in all have begun operations in the west of Sao Paulo state and Parana.

Crystal sugar prices dropped at the mill gate in Sao Paulo to BRL46.77 per 50-kilogram bag on Monday compared with BRL46.89 per bag on Monday, according to the Center for Advanced Applied Economic Studies.

Many industry buyers expect sugar prices to fall further, he said.
Trading firms were doing inter-company trade, said industry participants. "Cargill, Tate & Lyle, Sucden and Louis Dreyfus have all been doing some intracompany trade, while industry buyers remained out of the market," said the trader at a major U.S. sugar exporter.

More trade was conducted last week when companies rushed to conclude deals before the end of the month, he said.

A broker at a Sao Paulo brokerage said that sugar prices already include gains fed by concerns that less sugar will come from major world sugar producer India.

India's 2008-09 sugar output may fall 45% to 14.5 million tons from a year ago due to severe weather problems, and the decline in acreage has lowered cane availability, forcing mills to shut down, said the director-general of the Indian Sugar Mills Association this week.

Brazilian sugar exporters shipped 1.3 million metric tons in March, compared with 1.4 million tons in February, the Foreign Trade Ministry said Wednesday.
Brazil is the world's No. 1 sugar producer and the No.1 sugarcane-based ethanol producer.

SOURCE: martketwatch