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Brazilian cane crop worries send sugar higher

Sugar cane in in Rio de Janeiro state. Brazil's output is expected to fall. REUTERS/Sergio Moraes


Raw sugar prices have added to gains as traders continued to fear that the sugar cane crop in Brazil, the world's largest producer and exporter, could fall below recently marked-down expectations.

Unica, Brazil's cane industry association, this month slashed its forecast for sugar output from the key centre-south region from an original estimate of 34.6 million tonnes to just 32.4 million tonnes - down 3.3 per cent from last year. This represents the first drop in Brazilian production in more than five years.

Traders expressed worries that the actual production figures could drop even lower with some talking about 31 million tonnes.

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The tentative talk about lower output estimates for Brazil pushed the market higher on Thursday as the South American country is critical to the sugar market, accounting for about a quarter of world production and more than half of global exports.

"It is now clear that the world's largest sugar producer will see production fall for the first time in a decade," said Kona Haque, agricultural analyst at Macquarie in London, in a recent report.

In New York, ICE October raw sugar surged as much as 5.1 per cent to a session high of 30.40 cents (U.S.) per pound. The contract later pared gains to trade up 3.3 per cent to 29.86 cents per pound.

In London, the cost of white sugar also moved higher with Liffe October white sugar rising 3.2 per cent to $780.20 per tonne.

The price of sugar is an important driver of food inflation in emerging countries, where it accounts for a large share of calorific intake and can be a political flashpoint.

Raw sugar prices set a 30-year peak in February of 36.08 cents per pound, well above the 5- to 15-cents trading band common for most of the 1980s, 1990s and 2000s, when supplies were ample.

Analysts and traders cautioned that, while Brazil is set to deliver a much smaller crop than anticipated, other countries such as India could see a bigger-than-expected sugar cane crop.

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"But these new crops are still at least three to four months away and the focus right now is on current availability - in which Brazil's laggard performance is certainly providing bullish influence," Ms. Haque said.

Nonetheless, raw sugar contracts for delivery later in the year and into 2012 showed smaller price gains.

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