Raw sugar has climbed sharply in recent weeks to reach its highest level in 19 months, after a weak Brazilian harvest and high oil prices made it more attractive for Brazilian mills to turn cane into ethanol rather than food sugar.
Brazil is the world's largest sugar producer, and its presidential run-off election could have widespread implications for several commodities, according to market analysts.
The surge has been driven largely by a recent Brazilian crop report showing the volume of cane crushed was down, along with an unexpectedly large drop in the sugar mix, the proportion of a mill's sugarcane processed into raw sugar for food versus ethanol for fuel. Sucrose content, the yield of sugar recovered during crushing, has also remained very poor.
Eder Vieto, chief executive of Green Pool Commodities, said the weak results were likely to continue. Heavy rain forecast for October suggested lower sucrose levels and lower volumes would persist. "It's going to get worse from here," he said.
With low sucrose levels and high oil prices driven by conflict in the Middle East, Mr Vieto said it was advantageous for Brazilian mills to make ethanol instead of sugar. Even if they extend the crop and crush more cane, he said, it would be done at lower sucrose and sugar mix levels than expected before. With less sugar supplied to the global market, prices lifted, but he warned that could change, noting the outlook "depends very much on politics in Brazil" and its ethanol parity policy.
In North Queensland, Canegrowers Tully chairman Bryce Macdonald welcomed the stronger-than-anticipated market. "We might be able to put some money in the bank and [feel] a bit more comfortable when we go to buy fertiliser or chemicals," he said. "It will give some comfort to some farmers for those expensive inputs, particularly fuel."
However, Mr Macdonald noted that speculators and future uncertainty were already putting the much-needed gains under pressure.