Sugar price benefits from supporting news from Brazil

The sugar price climbed for a time yesterday to an eight-month high of 14.8 US cents per pound. This was the market's response to reports that investments are being made in the ethanol industry in Brazil again for the first time in nearly a decade. 

According to a Reuters report, at least nine major ethanol producers are building new and expanding existing production capacities. Ethanol producers are profiting from the weak Brazilian real and the resulting increased demand from abroad. Domestic demand has also picked up recently after the state oil company Petrobras raised its refinery-gate prices. 

Ethanol demand was lent additional support by higher taxes on gasoline in Brazil. It remains to be seen how demand develops in the rest of the world, however. Last week's sharp rise in the raw sugar price means that refiners are confronted with lower margins. This week, the price differential between white sugar and raw sugar hovered around the $70 per ton mark, which is nearly $10 lower than at the beginning of the month, notes Commerzbank. 

The fact that the sugar cane crop is currently making good progress in Brazil's Center-South region could likewise weigh on the sugar price in the short term. And the apparently gloomier outlook for Chinese demand should not be ignored either. The Chinese government intends to monitor imports more closely and to this end has introduced a new licensing system.