Weather, not price, to drive Brazil mills on sugar production
Wet weather in Brazil’s Center-South is expected to keep sugar mills focused on ethanol despite sugar prices rising over 21% in August and sugar offering a 20% margin advantage. High cane moisture and harvest delays are limiting sugar production, with CS Brazil output potentially staying below 38 million tonnes.
NEW YORK – Sugarcane processors in Brazil, the world’s largest producer of sugar and second largest of ethanol, will pay more attention to the weather than to market prices to decide how much sugar or fuel to make from now to the end of the harvest in December.
Wetter-than-normal weather in center-south Brazil, a characteristic of strong El Ninos, will likely prevent mills from boosting sugar production as some market players expected after raw sugar prices gained more than 21% last month.
Instead, Brazilian mills will continue to devote more sugarcane for ethanol rather than sweetener, analysts and traders told Reuters.
High moisture in the cane that is being harvested means the crop is better suited for ethanol, the experts said. The humidity boosts the plant’s vegetation growth, reducing the concentration of sugar but not impacting its use as fuel, they said.
“In the end, we are not looking anymore at market prices to guess the production mix in the final tail of the crop. The focus is the climate,” said Marcelo Bonifacio Filho, sugar analyst for broker StoneX.
Parts of Brazil’s sugar belt had the wettest winter time in more than 100 years, according to the University of Sao Paulo, which already caused delays in the harvest.
The global sugar market keeps a close eye on the production mix of Brazil mills, or the amount of cane they earmark for sugar or ethanol production. That mix is what determines how much sugar will come to the market from Brazil. Every 1 percentage point more of the mix towards sugar, for example, equals around 750,000 additional tons.
The current crop had seen a stronger ethanol mix for most of the year, due to high energy prices amid the Middle East conflict and previously lower sugar prices. Mills used only 42.5% of the cane to make sugar by early July.
Sugar futures jumped 21% in August, however, due mostly to the El Nino, making the sweetener more profitable for mills than ethanol.
“The gap is currently around 20% in favor of sugar,” said Fabio Meneghin, a partner at Veeries consultancy, adding that there is a clear incentive for mills to produce the sweetener. “The sugar mix is only not going up because of the weather,” he said.
The current sugar price rally could be capped if Brazilian mills manage to increase the sugar mix and bring additional supply to the market, said trader GSX Commodities in a comment to Reuters.
But if they can’t do that, and also if wet conditions prevent mills from harvesting all the available cane, sugar prices could go higher, it added.
StoneX said the market had already lowered its expectation for the sugar production in CS Brazil to below the 40 million metric tons that was expected at the beginning of the harvest. It sees the possibility for the total output to not surpass 38 million tons.
Further downgrades on the harvest could happen, said senior sugar analyst Michael McDougall, as there is a good volume of rain expected for.
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Source : Reuters
