December 12, 2012, 3:33 p.m. ET
NEW YORK—A surprise increase in sugar output from top producer Brazil sent futures prices for the sweetener down to a 28-month low.
Raw sugar for March delivery on ICE Futures U.S. dropped 1.8% to settle at 18.54 cents a pound, the lowest settlement since Aug. 11, 2010.
“Sugar has been fighting to stay above 19 cents (a pound),” said Adam Sarhan, chief executive of Sarhan Capital, a financial advisory firm. The drop is “a new definite sell signal, unequivocally.”
Earlier Wednesday, Brazilian government forecaster Conab said the country would produce 37.66 million tons by the end of the season in March, 4.7% more than in the 2011-12 crop cycle. Brazil produces about one-fifth of the world’s sugar.
Rains in May and June had led sugar traders to expect that Brazil’s output would be curbed in the current season. Instead, mills in the country’s main center-south growing region, where 90% of Brazil’s sugarcane is grown, have been crushing cane to make sugar and ethanol at a breakneck pace.
Brazilian sugar and ethanol association Unica reported Monday that the cane-crush and sugar production in the second half of November in that region more than tripled from the same period a year ago. Usually sugar production eases in late November because most of the harvesting is done by then.
“I don’t think anyone anticipated such a big swing at the tail end of the harvest,” said Newedge analyst Michael McDougall. He said the greater supplies from Brazil are bearish for futures prices.
Globally, sugar production has been outstripping demand, with 6.2 million tons in excess for the marketing year that began Oct. 1, according to the International Sugar Organization. Extra production from Brazil could exacerbate the situation.