July 2010 - Pushing Limits: CS Brazil's Battle to Meet Demand?

Loading Delays Highlight Weakness in Export Infrastructure

Brazil supplies over 70% of the world’s raw sugar, and most of this sugar comes through the ports of Santos and Paranagua in the Centre South of Brazil.  Brazilian exports have increased almost every year since deregulation in 1990, as sugar production has increased and Brazil has emerged as the world’s largest sugar supplier. Importers have consequently come to depend upon Brazil’s ability to expand sugar production and exports. However, while there is no question that Brazil has the ability to increase production, its export infrastructure is being pushed to the limit. The Sugar Review this month takes look at Brazilian export logistics and the effect that loading delays are having upon the sugar market.

  • The Centre South of Brazil will produce 34m tonnes, an increase of over 5m tonnes    on the previous year with fortnightly production potentially reaching a record 2.8m tonnes.
  • Sugar production is up over 30% on last year and while this would normally set a bearish tone, two seasons of production deficits have left stocks at record lows.
  • The demand has led to unprecedented queues of vessels waiting to berth at Santos and Paranagua ports as Brazilian export logistics have been unable to keep up.
  • The delays have impacted physical movements and those requiring prompt sugars have had to pay premiums, driving the futures spreads for the July and October contracts from discounts to inverses.
  • It is CS Brazil’s capability to export, and not produce, sugar that is now the limiting factor for the global sugar market.
  • This has shocked buyers who had hoped that, with the global balance sheet returning to surplus in 10/11, the market would drift lower.
  • The return to surplus in 10/11 may be illusive as production is being drawn back to meet demand from the 2009/10 season.
  • For the moment, however, the market is focused on the very short term on the level of trade dependence on Brazil and the increasing fragility of the global sugar market. 

Toby Cohen, head of analysis at Czarnikow, said: “A record CS Brazil harvest should be a trigger for a bearish market. However, in the short term, of greater importance are the logistical problems being experienced at Brazil’s ports where vessels are queuing to load as the country’s infrastructure is being pushed to the limit. It is our view that the return to surplus in the 2010/2011 season may be illusory, as production is being drawn back to meet demand from 2009/2010. ”

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Notes to Editors

For further information please contact:

Czarnikow 020 7972 6600
Toby Cohen
Peter de Klerk

Cubitt Consulting 0207 367 5100
Caroline Merrell
Michael Faulkner

About Czarnikow:

Czarnikow Group is one of the most respected names in agricultural commodity markets and has been providing high quality market services since 1861. Czarnikow operates in three core areas; sugar, biofuels and corporate services. Their success is built upon knowledge of the market, confidentiality, reliability and independence.

Commercial involvement in physical sugar transactions in excess of 8 million tons of sugar each year means that Czarnikow has a first hand presence in all major sugar markets of the world. Czarnikow works throughout the entire supply chain providing services to growers, millers, refiners, beet producers, traders, merchants and industrial users.

Czarnikow operates from a head office in London and a network of 10 regional offices to service clients and customers globally.