March 8th, 2013

Sugar futures climbed to a four-month high in London on speculation millers in Brazil, the world’s leading producer, will make more ethanol at the expense of the sweetener just as port congestion threatens to delay exports. Cocoa rose.

Sugar output in Brazil’s center south, the main growing region, may be little changed from last year even as the cane crop rises because producers are set to make more ethanol, according to Deutsche Bank AG. As many as 199 ships were waiting at Brazil’s main ports to load corn and soybeans, up from 190 a week earlier, data from SA Commodities and Unimar Agenciamentos Maritimos Ltda. showed. More loading of grains could delay shipments of the sweetener when the harvest starts in April.

“Based on current economics, producers should favour ethanol production through June 1,” Christina McGlone-Hahn, an analyst at Deutsche Bank, said in a report e-mailed today, recommending buying front-month raw sugar futures. “Vessel line-ups are further delaying soybeans from leaving the country.”

Sugar futures white for May delivery was 0.7 percent higher at $536.30 a metric ton by 11:23 a.m. on NYSE Liffe in London. Earlier, the price touched $537.70 a ton, the highest since Oct. 23. Raw sugar for May delivery gained 0.1 percent to 18.79 cents a pound on ICE Futures U.S. in New York.

The sugar-cane crop in the center south may be 580 million to 600 million tons this year, Deutsche Bank estimated. That compares with 532 million tons a year earlier. Sugar output may be as low as 34 million tons if taxes on ethanol are reduced, prompting millers to make more of the biofuel, the bank said. Output will be at most 36 million tons, it said.

Sugar: Ethanol Tax

A reduction or partial removal of the ethanol tax may prompt producers to maximize hydrous ethanol production in July to August instead of shifting toward sugar, McGlone-Hahn said. Hydrous ethanol is the 100 percent biofuel used in flex-fuel cars.

The price of hydrous ethanol in sugar equivalent is 19.7 cents a pound, according to Deutsche Bank. That’s 4.8 percent higher than raw sugar futures in New York. For anhydrous ethanol, the variety blended into gasoline, the price is 20 cents a pound, also higher than sugar futures.

Cocoa futures for May delivery rose 1.4 percent to 1,420 pounds ($2,136) a ton on NYSE Liffe. Cocoa for May delivery rose 1.6 percent to $2,094 a ton on ICE.

Robusta coffee for delivery in May gained 0.2 percent to $2,159 a ton in London. Arabica coffee for delivery in May slid 0.1 percent to $1.43 a pound in New York.

- Isis Almeida in London at Bloomberg.