Sugar production in Brazil's key Centre South region soared late last month, as mills – which have accelerated forward hedging in an effort to tap high prices – lifted above 50% the proportion of cane turned into sweetener.

Mills in the Centre South, responsible for some 90% of Brazilian sugar output, produced 2.95m tonnes of the sweetener in the last half of September, industry group Unica said.

The figure, a record for the period, represented a 23% increase year on year, and was 22% above the volume produced in the first half of last month.

While the volume was above the 2.894m tonnes expected by analysts on a poll by S&P Global Platts ahead of the report, many investors had actually factored in a figure larger than that Unica unveiled, said Nick Penney at Sucden Financial.

A "bearish report" had been expected, he said.

Indeed, raw sugar futures for March stood at 22.97 cents a pound a little after the Unica data were released – a modest rise, of 0.2% on the day, but well above the 22.81 cents a pound at which the contract had stood ahead of the report.

'Period was very dry'

Unica said that the cane crush in the Centre South reached 42.3m tonnes in the last half of September – a rise of some 12% in volumes processed in the first half of the month, encouraged by dry weather.

"The period was very dry and an estimated 0.3 days only were lost to rain," Mr Penney said.

However, while the figure was below the 43.2m tonnes that investors expected, according to the Platts poll, sweetener output was boosted by the larger-than-expected concentration of sugars in the cane.

Furthermore, mills turned 50.2% of cane into sugar, well ahead of the 48.6% that investors had expected, and compared with a figure of 41.7% a year before.

Hedging spree

Unica said that the increase in the proportion of cane turned into sugar, rather than ethanol, "was influenced" by a weaker contribution from independent distilleries able only to produce the biofuel.

However, the 50.2% figure was also seen as reflecting the better returns to be made from the sweetener, with Mr Penney flagging "sugar's continued large price advantage over ethanol".

In fact, Brazilian mills have scrambled to price sugar forward to exploit prices which, on the New York futures market remain close to four-year highs.

Indeed, they have sold 7.17m tonnes of sugar forward for 2017-18, which begins in April, equivalent to a record high proportion of 27%, according to Archer Consulting.

The previous record, of 19.7% of exports sold forward, was set in the run-up to the 2014-15 marketing year.

Fount: http://www.agrimoney.com/news/brazil-sugar-output-soars-as-mills-exploit-elevated-prices---10032.html