* Least efficient Russia, Ukraine growers seen exiting sugar
* Financial health of Brazil mills to improve as costs fall
* Brazil mills seen close to full capacity in 2013/14
By David Brough
DUBAI, Feb 4 Cane production costs in top sugar
exporter Brazil have started to fall due to the prospect of a
bounteous harvest and will force some of the least efficient
beet growers, many of them in Eastern Europe, to switch out of
Delegates at a major sugar industry conference in Dubai said
sugar beet farmers can more easily move into alternative crops
such as grains, while investment in cane planting is much more
The fall in costs will also improve the bottom line of
financially strapped Brazilian mills, they said.
"The cost of production in Brazil had been rising
significantly and this enabled other countries to compete," said
Jonathan Kingsman, head of agriculture at news provider Platts
and host of the Feb. 2-5 conference.
"As Brazilian industry recovers, the costs of production
will fall due to rising production capacity. These other
countries, which had increased sugar production, will have to
compete with Brazil. Russia maybe can't; Ukraine maybe can't."
The Union of Russian Sugar Producers has said it expects the
area planted in beets to drop by 8.4 percent next season.
Russia brought forward purchases of Brazilian raw sugar to
take advantage of cheap offers before a possible increase in its
import tariff on May 1, sources at two trade houses said.
Russia, which was the world's top raw sugar importer a
decade ago, has been moving towards self-sufficiency in sugar in
recent years, shielded by the rising production costs in Brazil,
which has been the source of its imports.
Many Russian farmers now could switch from sugar beet to
more remunerative wheat crops, several analysts said.
"In Russia, there could be a definite switch to wheat,"
Keith Flury, a senior soft commodities analyst with Rabobank,
said before the conference.
"Russia might be able to realise good revenues from grains."
Russia is also a leading wheat exporter.
Global sugar futures have almost halved in price
after reaching a peak of 36.08 U.S. cents a lb in February 2011.
Wheat prices, meanwhile, are roughly in line with those
paid two years ago.
Jonathan Drake, head of RCMA Sugar, said in an interview
that the most efficient Russian growers would continue to
The lower Brazilian production costs are not expected to
have any impact on sugar production decisions in the European
Union because of heavily protected prices in the bloc, which are
well above global market levels, trade sources said.
HIGH FIXED COSTS
Brazilian sugar production costs rose in recent years due to
factors such as adverse weather, which cut cane throughput in
mills, but this trend is now set to reverse as mills ramp up
production of a huge harvest in 2013/14, delegates said.
Sugar mills in Brazil have substantial fixed costs and need
to produce at near full capacity to keep their marginal costs to
"The key for the next Brazilian crop will be the maximum
productive capacity. I think we will be close to maximum
productive capacity," said Jeremy Austin, managing director of
trade house Sucden do Brasil.
"In theory that would mean a productive capacity of 600 to
620 million tonnes."
Several analysts have forecast that 2013/14 cane output in
the centre-south of Brazil, the main growing area representing
some 90 percent of the crop, will be around 580 million to 585
million tonnes, up from around 532 million in 2012/13.
Brazil's raw sugar production costs are set to fall to some
17-18 cents a lb from 20-22 currently as the volume of cane
processed by the mills ratchets higher, delegates in Dubai said.
The falling costs of sugar production in Brazil will
alleviate the pain of many mills, which have been struggling
financially in recent years due to a lack of available cane to
process, traders attending the conference said.
A panel of executives from Brazilian mills agreed that the
fall in Brazilian production costs would help the bottom line of
"The falling cost of production in Brazil will bring a sigh
of relief to mills that have been struggling to make a profit,"
one senior London-based analyst said.
Toby Cohen, a director of London-based merchant Czarnikow,
said in Dubai that, despite the fall in production costs, many
mills would still face financial problems because the current
sugar price was too low.
Benchmark ICE raw sugar futures stood at 18.84 cents
a lb, down 0.05 cent, on Monday, just above a 2 year and 5 month
low of 18.06 cents per lb touched on Jan. 23, pressured by a
huge global supply glut following a strong finish to the
centre-south Brazilian harvest.
(Editing by Nigel Hunt and Jane Baird)