Deutsche Bank sees sugar a “compelling risk”

Sugaronline: Published: 04/09/2013, 4:18:49 PM

 

Deutsche Bank recommended investors buy into the "compelling" sugar market, which could offer gains of 25%, according to Agrimoney.
The bank joined the growth band of commentators, including Commerzbank and Phillip Futures, to caution over the gloom over raw sugar futures, which stood at 17.66 cents a pound at 07:00 New York time (12:00 UK time), within an ace of the two-year low of 17.47 cents a pound reached last week.
Expectations of sizeable production in Brazil, which is beginning its 2013-14 crushing season, may prove unfounded if weather delays the cane harvest, with the limited surplus of processing capacity limiting mills' ability to catch-up on losses later in the year.

"Any Brazilian production lost early on to rains will not be seen this crop year," Deutsche Bank said, estimating the country's cane harvest at 585m tonnes, well below some other estimates of a crop of 600m-tonnes plus.
Furthermore, the removal of the so-called Pis-Cofins tax this month "has the potential to increase [ethanol] economics, prompting producers to maximise[ethanol] production during July and August", rather than switching their cane processing towards making sugar.
"Moreover, the possibility of a gasoline price hike exists," which would enable higher ethanol values, and again tempt mills to turn more cane into biofuel rather than sweeteners.

"Despite the anticipated global surplus this year and next, we believe the risk-reward for sugar is compelling," the bank said, foreseeing prices as treading a range of 17-22 cents a pound, and recommending a purchase of front-month sugar futures.
The forecast factored in a breakeven cost of 18.40 cents a pound below which it becomes more attractive to produce hydrous ethanol than sugar, and 19.59 cents a pound for anhydrous ethanol.