Wednesday (06) was characterized by losses in the sugar futures market, especially for the nearby contracts.
Following the trend recorded over the last several sessions, the previous day witnessed a movement of narrowing spreads, reducing market inversion.
The differential between the May and July raw sugar contracts closed the day (+) 174 points, compared to (+) 207 points earlier in the week.
However, the narrowing trend is more intense when the differential between backmonth contracts is taken into account. The spread between May 2011 and 2012 contracts, for example, went from (+) 577 points in early March, to (+) 298 points during the previous session.
This normalization trend in the market could signal an easing of concerns regarding the availability of sugar in the coming months, depending upon the start of the Brazilian Center-South crop.
Although UNICA projected a production increase for the commodity in the region for the upcoming cycle, these projections should be interpreted with caution.
First, the situation of Sao Paulo’s sugar fields is worrisome. Aside from the lack of expansion – due to a small volume of "bisada" cane and low agricultural productivity – most of the cane remains unripe, implying a low level of total recoverable sugars during the milling process.
Thus, aside from the need to reach the determined energy balance in order to start sugar production at each unit, the low sucrose content could contribute to mix more favorable to ethanol production at the beginning of the crop.
Brazil Planning, Resource and Special Projects Group