Analysts raise their hopes for a bullish sugar comeback

Published: 08/09/2017, 2:16:04 PM

Analysts lifted forecasts for New York raw sugar futures over the past month, by 0.5 cents a pound to a consensus of 16.0 cents a pound, in terms of the average for the October-to-December period, said FocusEconomics, according to Agrimoney.

The upgrade - over a month in which a sugar rally faded after temporarily crossing back above 15 cents a pound - puts the forecast well ahead of the futures curve, with New York's October contract trading on Wednesday at 13.83 cents a pound.

And further ahead, brokers are more bullish too, seeing futures average 16.3 cents a pound in the last three months of 2018, compared with the 15.42 cents a pound being priced in to the October 2018 contract.

"Prices should drift up slightly from their current level, as a poor outlook for profits encourages some producers to shift away from sugar towards other commodities," said FocusEconomics, which draws its forecasts from the likes of ANZ, Commerzbank and Itau BBA.

Indeed, the comments come amid some idea that sugar values have now slipped below so-called ethanol parity - the level at which Brazilian mills have an equal financial incentive to make either sugar or ethanol from cane.

Sucden Financial said that "the recent price movement and tax changes on ethanol have contributed to the parity increasing," with the biofuel offering the equivalent of an extra 0.30 cents a pound, in sugar terms, on a spot basis, and 0.50 cents a pound on September-to-January terms.

"Ethanol is therefore now more remunerative than sugar for export," the commodities house said, although adding that the "market will need to see evidence" of ethanol being preferred to sugar by Brazilian mills "before it admits to a base being formed in the sugar price".