RISE IN SUGAR PRICES LOSES MOMENTUM

Sugar prices on the international market showed a sharp decrease in May, losing almost 200 points and signaling that the upward tendency seen in the last months is beginning to lose some of its thrust.

“The foundations are beginning to change”, noticed Julio Maria Martins Borges, President of Job Economics and Planning. "Investment funds are abandoning their invested positions", says Fernando Martins, an operator with Fimat Futures.

On the international market, the future prices of the commodity withdrew nearly 15% in May. Over the past 12 months (until June 6^th, 2006), however, the commodity presented an increase of almost 80%.

According to Martins Borges, the world’s sugar harvest in 2005-06 (from October to September) was fairly even, with a slight global deficit, a factor which helped sustain prices. This scene began to shift with the recovery of Asian countries, such as India and Thailand, and also with the record harvest in Brazil, according to the analyst. “The climate in southeastern Asia favors the development of sugar cane”, says Mr. Borges.

Despite a tendency to equilibrium in supply in 2006-07, Brazil has in its favor the fact that the European Union is reducing, as of this year, its participation in the international market, because of sugar reforms carried out by the European bloc, and also because the World Trade Organization ruled in favor of Brazil, Australia and Thailand. The WTO has determined that the E.U. will have to reduce subsidized sugar exports. Job Economics and Planning believes that the greater production of ethanol, above all in Brazil, will only support international prices in the long run. “In the short term, the effect will only be felt in Brazil”, says Mr. Borges.

And that is already happening in the Brazilian market. Sugar prices in Brazil have remained constant, even as the sugar cane harvesting season progresses in the Center-South regions of the country.

On June 6^th, the 50-kilo sack closed at R$ 49.42 (approximately US$ 22.46) in Sao Paulo, up 92% in relation to the same period last year, according to the daily survey carried out by the Center for Advanced Studies in Applied Economics (Cepea). According to Mr. Borges, the expectation among analysts is that sugar prices will remain constant in the domestic market at least until July, due to contracts already signed by refineries and mills with foreign clients.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.