Sugar Prices Fall After Cut in Gasoline Prices
May 26 2017 - 3:18PM
Dow Jones News
By Carolyn Cui
Sugar prices fell to 13-month lows Friday, as traders were
spooked by a surprise gasoline price cut by Petrobras and Brazil's
larger-than-expected cane crush.
Raw sugar for July lost 3.9% to settle at 15.05 cents a pound on
the ICE Futures U.S. exchange, the lowest price since April
2016.
Brazilian state-run oil company Petroleo Brasileiro SA, known as
Petrobras, said Thursday night that it decided to reduce the
average price of gasoline at its refineries by 5.4%, a move to win
back its shrinking market share in the country's internal gasoline
sales.
For the sugar community, this came as a surprise. Lower gasoline
prices would further discourage sugar mills in Brazil from
producing ethanol, therefore adding to the woes of an already
oversupplied sugar market.
"Given the gasoline arbitrage was -12% according to DATAGRO,
they should have RAISED prices by that amount," according to
Michael McDougall, director of commodities agency at Societe
Generale SA. DATAGRO is a Brazil-based agricultural
consultancy.
On Friday, Brazil's sugar-industry group Unica said farmers in
the country's center-south region harvested 38.46 million metric
tons of sugar cane during the two-week period ended May 16.
That came in higher than market expectations. Analysts surveyed
by S&P Global Platts estimated that only 36.15 million tons of
cane was crushed, as excessively wet conditions would have slowed
production.
"Given the well reported weather problems which had resulted in
harvest interruptions and created conditions which should have been
more favorable to ethanol production, the results had been expected
to be supportive to the market," said James Liddiard, an analyst
with Agrilion Commodity Advisers, in a note to clients.
Sugar production was 1.7% higher year-over-year at 2.106 million
tons, which was above the 1.88 million seen by Platts. During the
period, a far higher portion of the cane was diverted to sugar
(46.77%) than either expected or was seen this time last year
(44.01%).
Broadly, sugar was weighed down by crude oil prices' 4.8% slump
Thursday, as OPEC members agreed production cuts fell short of what
the market was expecting.
"Unica just added a bit more bearishness to the market," said
Claudiu Covrig, a senior analyst at Kingsman, a unit of S&P
Global Platts. Given all the bearish fundamental news, "for sure,
traders will try to sell into this market," he said.
In other markets, cocoa for July was up 1.8% to close at $1,911
a ton, July arabica coffee gained 1.5% to end at $1.3120 a pound,
frozen concentrated orange juice for July added 2% to $1.3860 a
pound, and July cotton edged down 0.1% to 77.09 cents a pound.
Write to Carolyn Cui at carolyn.cui@wsj.com
(END) Dow Jones Newswires
May 26, 2017 15:03 ET (19:03 GMT)
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