Nov 13 / Lívea Coda

Sugar and Ethanol Weekly Report - 2023 11 13

  Back to main blog page
"Brazil is back in the game, with yields above the recent history average, area expansion, and investments in crystallization. Of course, that infrastructure might impose some restraints, but its difficult to imagine that the sector would let the opportunity slide, especially considering the recent price disparity between the sweetener and ethanol. "

Brazil is back in the game!

  • Touching the 28c/lb level, raw sugar took advantage of the recent shift in macro sentiment and port congestions in Brazil.

  • The sugar market is getting more and more dependent on Brazil, the good news is that the country is expected to keep pushing and reaching excellent results.

  • Cane yields during 23/24 are the main reason behind the region’s excellent results. It breached the recent-history average moving close to 08/09 levels.

  • The price disparity between the sweetener and ethanol – currently at 13USc/lb or over 290 USD/t – also endorses mills’ decision and creates incentive for investment in both crystallization and infrastructure.

  • For 24/25, market consensus suggests excellent results in Center-South, our preliminary view accounts for a production exceeding 42Mt and exports close to 33.5Mt. But there is still a lot to unravel.
The sugar market availability is getting more and more dependent on Brazil, the good news is that the country is expected to keep pushing and reaching excellent results. But before we delve into Brazil numbers and expectations, it is important to discuss last week’s price movements.

The week started with sugar prices reaching 12-years highs, supported by disruptions in Center-South’s (CS) exports caused by port congestion and rainfall. However, Brazil is still trading at a discount – close to flat prices – meaning that origins are not yet fully under the Northern Hemisphere tightness influence. Of course, as we approach Brazil’s summer, and thus, the time of the year when mills are forced to reduce their rhythm and cane becomes scarcer, prices might find further support.

Image 1: Sugar took advantage of both internal and external market support

Source: Refinitiv, hEDGEpoint

Touching the 28c/lb level, raw sugar also took advantage of the recent shift in macro sentiment. The dovish speech made by Powell after Fed’s decision to keep interest rate stable offered further support to the commodity, as it induced a sharp correction in the dollar index. Even with this framework, sugar was unable to sustain its gains, correcting back to 27.2c/lb on Friday.

It was, therefore, a volatile week, and CS remains one of the hottest and bearish topics.

Cane yields during 23/24 are the main reason behind the region’s excellent results. It breached the recent-history average moving close to 08/09 levels. Not only that but area is also expected to recover. Nevertheless, these are well-explored topics, that, together with an excellent cane quality so far – despite closer-to-average precipitation – allow Brazil to be the biggest bearish force in the market.

Image 2: Brazil is the strongest bearish force: yields are set to moved back above average

Source: UNICA, Conab, hEDGEpoint

Of course, price volatility this week is tight to the country’s ability to ship the sweetener. Port congestion is reported to be up, and cash premium is starting to react, but this doesn’t mean that Brazil doesn’t have products, on the contrary, sugar is waiting to reach the international market. Therefore, the country is expected to postpone the start of Northern Hemisphere tightness effects, by supplying more than 30Mt of exports during 23/24.

The recent rains are known to already be beneficial to the next sugar crop. So far, prospects seem to be in the region’s favor. Even if we assume that there will be some retraction in the TCH, positive weather can work two ways this time: it can boost cane development and induce a higher volume to be left on the field, adding to next year’s cane prospects.

Image 3: Brazilian CS Sugar Balance (Mt tq)

Source: UNICA, SECEX, Williams, MAPA, hEDGEpoint

The price disparity between the sweetener and ethanol – currently at 13USc/lb or over 290 USD/t – also endorses mills’ decision. Not only sugar is expected to remain the more profitable alternative, but 23/24 results induced crystallization capacity investments while it made explicit the need to invest in infrastructure – and the sector won’t let this opportunity slide.

For 24/25, although there is still a lot to unravel, market consensus seems to dwell on excellent results. So far, we expect Center South to be able to produce more than 42Mt and export close to 33.5Mt. This means that a strong bullish trend might be short-lived, especially if El Niño’s impact on the Northern Hemisphere remains restricted to the 23/24 crop season. However, we must remain cautious as global demand is set to continue its expansion path and, any adverse climate might still drive the market to a deficit.

Image 4: Global trade flows (‘000t tq)

Source: Green Pool, hEDGEpoint

In Summary

Brazil is back in the game, with yields above the recent history average, area expansion, and investments in crystallization. Of course, that infrastructure might impose some restraints, but its difficult to imagine that the sector would let the opportunity slide, especially considering the recent price disparity between the sweetener and ethanol. We can expect that given favorable cane development; Brazil is set to maximize its participation in the international market also in 24/25.

Weekly Report — Sugar

Written by Lívea Coda
[email protected]
Reviewed by Natália Gandolphi
[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).

To access this report, you need to be a subscriber.