A greater share of Brazilian cane is expected to go to sugar in 2016/17 than in the previous season, providing a boost to tightening global supplies, with prices more remunerative for the sweetener than for cane-derived ethanol. Traders said the weakness of Brazil's currency, the real, against the dollar had helped to enhance the attractiveness of sugar production.
The bulk of Brazil's sugar is exported for dollars, while ethanol is mostly sold on the domestic market and paid for in the weakening local currency. "It's still early but we are projecting 43.5 to 56.5 percent sugar to ethanol in 2016 after an ethanol-rich 2015, when only 41.8 percent of cane went to sugar. The main cause is price, which is very attractive," said Arnaldo Correa at Archer Consulting in Sao Paulo.
Sugar bucked an overall weaker trend in commodity prices in 2015, rising a modest 5 percent. When prices are converted into Brazil's real, however, the increase is much steeper at more than 50 percent. Other analysts also forecast a shift back towards sugar that may be driven by a return to more normal weather after heavy rains in late 2015 reduced the sugar content in cane.
Rabobank forecast that 43.0 percent of centre-south Brazil cane would be allocated to sugar in 2016/17, up from just below 41.0 percent in 2015/16. Analysts at Green Pool forecast that 42.5 percent of centre-south Brazil cane would go to sugar, up from 40.8 percent in the previous season.
The global sugar market has begun to tighten, with a global deficit widely forecast for the 2015/16 season after a run of four seasons during which supplies had outpaced demand. Traders said producers in Brazil, the world's top exporter of sugar, had been seeking to take advantage of high prices by hedging on ICE raw sugar futures, effectively fixing in advance the price they receive for next season's production.