Aug 7 / Lívea Coda

Sugar and Ethanol Weekly Report - 2023 08 07

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"Prices might finally correct after the market reaches a consensus that Brazil does have plentiful cane. Given 23/24 realized figures so far, our model points out to 616Mt of cane. Considering expected weather improvement, TRS might also be higher than previously anticipated, at 139.5kg/t. Having an addition 2Mt availability, CS contributes directly to smoothing trade flows."

Brazilian CS crop revision

  • Fields look beautiful and plentiful, Unica’s latest reports have confirmed an extremely positive trend. Not only do yields look good, but TRS has improved compared to previously expected, especially given the drying up of some weather forecast models.

  • Our models suggest that TCH should end the season at 81.3 t/ha. With a 1.3% increase in area, it would be possible to crush 616.4Mt of cane. We also revised our TRS up from 137.7 to 139.5kg/t, which, combined with a 48% sugar mix leads us to 39.4Mt of sugar – nearly 2Mt improvement in availability.

  • Prices might finally correct as Brazil is, once again, nearly bearing Northern Hemisphere availability reduction on its own.

  • It remains essential to monitor rains and crop development in other countries such as India and Thailand to understand the complete picture, however, the sugar market seems to be breathing a little more easily.

    It seems to be a consensus that Brazil’s Center South (CS) does have more cane than previously anticipated. Unica’s latest reports confirmed this trend: crushing has already recovered more than 10% compared to last season.

    The fields look beautiful and plentiful! Cane yields have reached unprecedently high figures in May and have corrected little during June, remaining at 91 t/ha. Of course, one should consider that there is a higher participation of younger cane, as pointed out by Unica, being possible to maintain a more moderate gain over the next few months.

    Not only that, but the rains forecast have dried up for August’s, meaning that the region might not face as much trouble as previously anticipated, at least during the first fortnight. The prospects of average precipitation leaves us with a bit more optimism regarding TRS.

    Therefore, it becomes essential to re-evaluate our numbers. Our models suggest that TCH should end the season at 81.3 t/ha. With a 1.3% increase in area, it would be possible to crush 616.4Mt of cane.

Image 1: Cane Yield Estimates (t/ha)

Source: UNICA (Cana Zoom); hEDGEpoint

Image 2: Brazilian CS Crushing per Fortnight

Source: UNICA; hEDGEpoint

Although market is discussing 620Mt+, we believe that in order to reach that number everything needs to go well/perfect – and we always choose to remain rather conservative. Having average rains, which means higher precipitation than in the previous 3-4 years, mills might still face some difficulties in keeping the rapid pace up.

In terms of TRS, we also revised it up to 139.5 kg/t. Although mills are going fast and there has been some flowering, the weather has contributed to recent results and is expected to remain doing so in the coming months. Therefore, our previous 137.7 kg/t became outdated. The only unchanged figure remains the sugar mix, at 48%.

Adding all the changes up our sugar production for 23/24 increased by nearly 2Mt, from 37.6 to 39.4Mt. This addition was diverted to exports directly, increasing availability drastically in Q3/23 and Q4/23 and smoothing Northern Hemisphere’s reduction in Q1/24.

Image 3: CS Export Seasonality Before Update (‘000t)

Source: SECEX, Williams, UNICA, hEDGEpoint

Image 4: CS Export Seasonality AfterUpdate (‘000t)

Source: SECEX, Williams, UNICA, hEDGEpoint

Note that, as our first glance at 24/25 CS sugar production is highly dependent on 23/24 expectations, the recent update also pushed next year’s production up, contributing to higher availability during the rest of 2024.

Ethanol remains struggling at a lost battle, and although we revised our Otto Cycle growth up to 5.5%, biofuel participation remains reduced compared to previous years. Hydrous sales are still lagging behind average and previous year’s results, while anhydrous benefits from higher gasoline consumption.

In the end, the market is already debating higher cane figures from Brazil, and evidence points towards that end. Once again, Brazil might be the bearish driver for prices, as it is nearly bearing Northern Hemisphere availability reduction on its own.

Image 5: Trade Flows Before Brazil’s Update (‘000t)

Source: hEDGEpoint, Green Pool

Image 6: Trade Flows After Brazil’s Update (‘000t)

Source: hEDGEpoint, Green Pool

In Summary

Prices might finally correct after the market reaches a consensus that Brazil does have plentiful cane. Given 23/24 realized figures so far, our model points out to 616Mt of cane. Considering expected weather improvement, TRS might also be higher than previously anticipated, at 139.5kg/t. Having an addition 2Mt availability, CS contributes directly to smoothing trade flows.

Weekly Report — Sugar

Written by Lívea Coda
[email protected]
Reviewed by Victor Arduin
[email protected]
www.hedgepointglobal.com

Disclaimer

This document has been prepared by hEDGEpoint Global Markets LLC and its affiliates ("HPGM") exclusively for informational and instructional purposes, without the purpose of creating obligations or commitments with third parties, and is not intended to promote an offer, or solicitation of an offer, to sell or buy any securities or investment products. HPGM and its associates expressly disclaim any use of the information contained herein that may result in direct or indirect damage of any kind. If you have any questions that are not resolved in the first instance of contact with the client ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878-8408 (for clients in Brazil only).

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