By Carolyn Cui

Sugar fell Wednesday, hitting its lowest level in 16 months, after a Brazil industry group reported that sugar production in the country's key growing region in the first half of June nearly doubled from a year earlier.

Raw sugar for July declined 0.8% to settle at 12.55 cents a pound on the ICE Futures U.S. exchange.

Industry group Unica said that center-south mills produced 2.4 million tons of sugar, up 97.8%, and made 1.5 billion liters of ethanol, an increase of 39.7%. The results were slightly lower than an S&P Global Platts survey which indicated an output of 2.45 million metric tons.

Unica also said that the production mix for the first half of this month was 49.3% sugar to 50.7% ethanol, while Platts estimated the sugar mix to be 48.7%.

The reaction in the sugar market showed that traders were still concerned about the record production this year from Brazil, which could leave the world with a surplus.

Sugar traders are closely watching Brazil, as it is big enough to swing the global market. Despite a 30% drop in sugar prices from a year ago, many Brazilian mills would continue to produce sugar as they already locked in prices when they were higher.

However, with current prices now below many producers' costs, it is expected that the amount of cane devoted to ethanol production will increase, some traders said.

Michael McDougall, director of commodities agency at Societe Generale, noted that there were still 64,526 lots outstanding in the July contract, which is set to expire in three trading days.

The open interest is 33% above the previous May contract, which ended up in a delivery of 1.5 million tons, second only to the record 1.9 million ton delivery in May 2015, according to Mr. McDougall.

"So potentially, we have a large delivery, and that, in theory should be negative," he said.

In other markets, cocoa for September gained 1.1% to close at $1,884 a ton, arabica coffee for September was down 0.7% to settle at $1.2440 a pound, frozen concentrated orange juice for September fell 2% to $1.3840 a pound, and December cotton lost 0.1% to settle at 67.65 cents a pound.

Write to Carolyn Cui at carolyn.cui@wsj.com

(END) Dow Jones Newswires

June 28, 2017 16:20 ET (20:20 GMT)

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