November 28, 2016 / 3:06 PM / 4 years ago

Brazil sugar industry sees no quick end to global shortage

SAO PAULO, Nov 28 (Reuters) - Brazil is not expected to ease the global deficit in sugar next year as cane output from the world’s largest exporter of the sweetener is only forecast to at best match this season’s production numbers, leaders in the sector said on Monday.

The world is facing its second year of a global sugar deficit, but the International Sugar Organization said last week that the shortage could soon be over, as other countries increase production in response to higher prices.

Brazil, however, is not likely to be among those countries.

“The overall trend is for no growth in Brazil’s cane production,” Luis Roberto Pogetti, chairman of Copersucar, the world’s largest sugar milling cooperative, told reporters on the sidelines of a conference in Sao Paulo sponsored by Brazil’s cane industry group Unica.

Sugar futures prices have weakened since October but are still close to four-year highs due to tight supplies of the sweetener.

One of the factors holding Brazil’s cane crop back has been the lack of investment by debt-ridden mills. Replanting 15-20 percent of their ageing cane crops is the biggest annual investment mills face if they want to maintain yields.

“We are maintaining our capex, but we know some companies are facing difficulties investing in fields,” Rui Chammas, chief executive officer of Biosev, Louis Dreyfus’ sugar and ethanol arm in Brazil, said. “So, I think we will continue to see a deficit for some time and a premium on sugar prices.”

Most analysts anticipate an unchanged or slightly smaller 2017/18 cane crop in Brazil, compared with around 600 million tonnes for the center-south area this year. The lack of investment in replanting cane fields and dry weather through 2016 is expected to limit the amount of cane harvested per hectare next year.

But mills are expected to focus heavily on sugar production, even increasing it slightly at the expense of ethanol, which offers lower returns to mills than sugar sales.

Chammas believes this outlook will remain positive for prices and does not see raw sugar futures retreating soon.

Biosev has already hedged 50 percent of its 2017/18 sugar that will start to be produced around March or April. The firm’s CEO says futures are clearly attractive so selling forward continues to be a good strategy. (Editing by Reese Ewing and Meredith Mazzilli)

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