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Sugar Futures Plunge on Fears of Larger-Than-Expected Surplus

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July 25th, 2017

Sugar futures plunged Tuesday, as Brazilian sugar mills continued to direct more of the cane toward sugar production, fueling fears over a larger-than-expected surplus.

Center-south mills in Brazil produced 3.1 million metric tons of sugar in the first half of July, up 9.1% year-on-year, while ethanol output fell 1.9% to 1.89 billion liters, industry group Unica said Tuesday.

Raw sugar for October delivery fell 3.5% to settle at 13.90 cents a pound, on the ICE Futures U.S. exchange.

During the two-week period, mills still heavily favored sugar over ethanol by directing 50.4% of the cane to sugar production, up from 47.7% a year earlier, according to Unica. This was running much higher than what the market had expected. For instance, analysts at INTL FCStone estimated that 47% of the cane would be used for sugar crushing.

Even though the cumulative cane crush was down on the year, cumulative sugar production was 2% higher than the same period last year.

"That is a result of a higher proportion of the cane crushed directed to sugar production this season," said analysts at Platts Kingsman, a unit of S&P Global Platts.

Recently, several research firms have revised their estimates for next year's sugar market surplus, thanks to a larger crop in Brazil.

Analysts are closely watching Brazil, as a new tax policy might change the sugar industry's dynamic.

Last week, the Brazilian government announced plans to raise taxes on gasoline and diesel fuel, in an effort to patch a budget shortfall in the country. The move was interpreted as positive for raw sugar prices, as it would drive up demand for ethanol, analysts said. Higher ethanol consumption will also lift the Brazilian sugar-ethanol parity floor, which may help support sugar prices, they said.

In other markets, cocoa for September was down 2.1%, to close at $1,926 a ton; arabica coffee for September fell 1.5%, to $1.3060 a pound; frozen concentrated orange juice for September was down 1.4%, to $1.3265 a pound; and December cotton added 0.8%, to settle at 68.83 cents a pound.

 - Carolyn Cui at Wall Street Journal

Also: Coffee, Cocoa, Cotton, Orange Juice, Sugar