Brazil Sugar Supplies Pile Up on Currency Jolt, Ethanol Doldrums

Two factors are causing the world’s largest sugar producer and exporter to face a mounting inventory. 

Brazil Sugar Supplies Pile Up on Currency Jolt, Ethanol Doldrums
A worker walks past a ship loaded with sugar for export at the Port of Santos in Santos, Brazil. (Photographer: Paulo Fridman/Bloomberg)

Brazil, the world’s top sugar producer and exporter, faces mounting inventory following the real’s slump against the dollar and muted demand for cane-based ethanol during the coronavirus pandemic.

Warehouses in the Center-South, the main producing region, may hold 12.5 million to 13 million metric tons of sugar as early as October, according to Green Pool Commodity Specialists, marking an all-time high.

Only an output disruption or exports consistently above record levels through the end of October would reduce inventories to below 12.5 million tons, said Eder Vieito, a senior commodity analyst at Green Pool.

Brazil Sugar Supplies Pile Up on Currency Jolt, Ethanol Doldrums

A plunge by Brazil’s currency to a record boosted sugar prices in reais for the industry. Mills shift to sugar or biofuel, depending on the profit outlook.

Brazil’s ending sugar stocks in March may rise to an eight-year high, and massive supplies “would weigh on domestic inventories and global trade,” said Bruno Lima, head of sugar at StoneX in Sao Paulo. India’s exports may add to world supplies in October, he said.

Raw sugar for October delivery futures rose 0.7% to 12.9 cents a pound at 11:46 a.m. on ICE Futures U.S. in New York after touching 12.6 cents, the lowest for a most-active contract since Aug. 11.

On April 28, the price slumped to 9.21 cents, the lowest since September 2007. Sugar rallied partly on demand from China. Imports by the Asia nation in July fell 28% drop from a year earlier.

After Brazil’s exports in the four months ended July surged 58% from a year earlier, signs of weakness emerged in the physical market, Lima said. “The premium at ports is not reacting, the white premium is steady and Brazil’s vessel lineup at ports has been significantly reduced.”

The prospect of expanding inventory “would seem to imply that Brazilian mills will be willing to make a large delivery against the October contract,” which expires on Sept. 30, said Michael McDougall, managing director at Paragon Global Markets.

The outlook for increasing Brazilian and Indian exports may mean lower futures by October, Lima of StoneX said.

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