Green Pool, citing weaker expectations for Brazilian and Thai output, raised the bar on expectations for the world sugar production deficit expected for 2015-16 – but futures in the sweetener remained near six-year lows nonetheless.

Green Pool hiked to 4.61m tonnes its forecast for the global sugar production shortfall in 2015-16, from a forecast of 2.80m tonnes made in late May.

The revision took Green Pool's estimate for the deficit above forecasts from other commentators, such as FCStone, which last month pegged the shortfall at 3.9m tonnes, and Rabobank, which sees it at 3.4m tonnes.

Cane refiner ASR Group on Friday estimated the shortfall at 2.7m tonnes, although some caution must be maintained in comparing forecasts from different commentators given that they can use different methodology and varying dates for marketing years.

Green Pool measures production, and consumption, in terms of raw sugar equivalent, and local crop output years, with consumption pegged on an April-to-March basis.

'Still more room for shorts'

Nonetheless, despite the Green Pool estimate, raw sugar futures remained in negative territory in lunchtime deals in New York, standing down 0.8% at 10.57 cents a pound for October delivery, if a touch above the 10.53 cents-a-pound level reached earlier which represented a six-year low for a spot contract.

The decline was attributed in part to data on hedge fund positions which failed to show the increased net short that many investors had expected.

The report "shows there is still more room for shorts to be established", said Sucden Financial.

Furthermore, data from industry group Unica showed a strong finish to July for cane processing in Brazil's key Centre South region, with 49.4m tonnes of the crop crushed in the second half of the month.

That represents a 37% jump year on year, spurred by dry weather which has allowed rapid harvesting, and is bigger than the figure of 46m-47m tonnes that the market had forecast, according to Sucden. 

'Can crush as much cane as they choose'

A strong harvest pace is expected to continue, with Commonwealth Bank of Australia analyst Tobin Gorey saying that "weather forecasters continue to forecast seasonable or drier weather in south Brazil's cane regions for the next week or so.

"South Brazilian millers look likely to be able crush as much cane as they choose in the first half of August."

However, there are questions over how much of the cane mills will process into ethanol, rather than sugar, with the proportion directed to sweetener falling well below initial expectations thanks to the better returns from producing the biofuel.

In the last half of July, Centre Mills turned only 43.9% of cane into sugar, compared with 46.2% a year before, the Unica data showed.

Cumulative Centre South sugar output since the start of April, at 13.5m tonnes, is down 10.7% year on year.

'Brazil will run short of ethanol'

Green Pool cut by 1.2m tonnes to 30.3m tonnes its forecast for sugar production in the Centre South in 2015-16, on an April-to-March basis.

"We expect strong ethanol sales to continue," the Australian-based consultancy said.

Indeed, demand for the biofuel, which is being stoked by a higher blending mandate and lower fuel prices, is such that "Brazil will run short of ethanol in the inter-harvest period".

Mills typically close between around December to March, to undertake maintenance in what is typically a wetter period, meaning tougher conditions for cane harvesting.

'Lengthy dry period'

Green Pool also cut its forecast for sugar production in Thailand, the second-largest exporter of the sweetener after Brazil, by 800,000 tonnes to 10.5m tonnes "because of a lengthy dry period June-July across Northern and Central Thailand in particular".

Indeed, the consultancy highlighted the strengthening El Nino weather pattern, which has a habit of bringing undue dryness to South East Asia, besides increased spring and summer rainfall for Centre South Brazil.