BRAZIL: Political crisis to affect sugar market, says INTL FCStone

Published: 05/19/2017, 2:56:40 PM

The political crisis in Brazil aggravated by news released Wednesday about a recording in which President Michel Temer discusses bribery is expected to affect the sugar market, according to INTL FCStone consultancy firm, according to Brazil's Jornal Cana.

"With the great Brazilian participation in sugar production (23%) and exports (49%), this market will be one of the most affected by the intensification of the political crisis in Brazil," the consultancy firm said in a statement.

"Contract # 11 at ICE/NY has already been falling sharply and may suffer further in the event of further devaluation of the Brazilian currency. This is a result of the relatively fair share of local currency prices in production costs."

The consultancy firm added that most Brazilian mills have the option to dedicate sugarcane production to sugar or ethanol output. Since sugar production is mostly exported and ethanol production is mainly sold domestically, exchange rate variations affect the trade-off between the two products.

"For example, for sugarcane mills in Goiás state, sugar production outweighed that of ethanol when #11 contract prices were above 15.74 cents/lb, considering (Wednesday's prices). With the dollar at  BRL3.40, the equivalence between the products falls to cents 14.54/lb."