Jul 22 / Lívea Coda

Brazilian Center-South update

The sugar market has declined in recent days amid better prospects in India and Thailand. However, demand remains strong, and Brazil is still the biggest player in the market at the moment.
In this sense, we will discuss our latest update on the Brazilian Center-South crop. Regarding the sugar mix, we have been overestimating its level. Adjusting for this trend, a revised estimate of 50.3% for the end-of-season sugar mix aligns better with current data. This adjustment is not due to changes in mills' profit-maximization strategies, as ethanol is not a significant threat to sugar, but rather due to lower-quality cane from a recent dry spell and higher crushing volume.
Concerning cane volume, Total Cane per Hectare (TCH) remains strong at 89.35 t/ha, only 3.5% lower than last season and 21.6% higher than the historical average. While favorable weather may have initially boosted cane crushing, the numbers suggest a more robust volume than previously estimated.
We have increased our cane estimate by nearly 6Mt to 620Mt for the 24/25 season. Despite these adjustments, the impact on total sugar production and trade flows is minimal.

Sugar contracts have fallen sharply in recent days, reflecting in particular a more positive scenario in the Northern Hemisphere. Prospects for improved production in India and Thailand have pushed the October raw sugar contract to its lowest level since June 3. However, demand for the sweetener remains strong, with Brazil the main exporter for the period.

Thus, in this report, we aim to further discuss our latest update on the Brazilian Center-South crop. The last Unica report, released on July 11, highlighted two key aspects of the 24/25 crop season. First, the sugar mix remained below 50% during the second fortnight of June, making it extremely difficult to maintain the expectation of above 51% for the season. Second, the cane volume is likely to be higher.

Regarding the sugar mix, we have been overestimating its level. Considering this trend, it seems reasonable to revise our estimates. Incorporating the realized figures, a value closer to 50.3% for the end-of-season sugar mix is more aligned with the current data. Note that this is not due to a change in mills' profit-maximization decisions, as ethanol remains far from being a threat to sugar. Instead, this trend is a direct result of lower-quality cane, a symptom of the dry spell that affected the Center-South cane development window - in addition to the high crushing also making it difficult to achieve higher mix levels!

Regarding cane volume, Total Cane per Hectare (TCH) is still showing strength. Compared to last season, the cumulative index reached 89.35 t/ha, only 3.5% lower. This level is also 21.6% higher than the historical average, indicating that expecting an "average harvest" would be unrealistic. Some might argue that the lack of rain has favored crushing activities and could lead to a faster crop with an early end (sudden death). However, it's important to note that mills started early. It wouldn't make sense to jeopardize Total Recoverable Sugar (TRS), TCH, and the sugar mix by starting the harvest early when there wasn't enough rain for cane development unless there was a higher cane volume.

We are not completely dismissing the fact that favorable weather has boosted cane crushing in the initial phase of the crop, of course, it led to a faster pace. However, the numbers indicate a more robust volume than our previous estimate. Therefore, while we await confirmation of June's realized TCH, we have decided to increase our cane estimate by nearly 6Mt, bringing it to 620Mt in 24/25. These new volume is in line with a nearly 9% drop to cumulative TCH and a 4.5% increase to planted area.

Combining these two metrics and maintaining our TRS stable, at 139kg/t, total production is revised down from 41.6 Mt to 41.3 Mt – a marginal impact.

In terms of trade-flows, taking away 300kt impacts little the overall expected surplus. Therefore, if we consider concerns on the Brazilian crop the major bullish factor, the market might as well be rather bearish. Meanwhile, as discussed in our previous report, our trade flows consider 1.5Mt of exports coming out of India. Although a surplus is being priced, during the Brazilian intercrop market might find support in Indian export parity (for more information, check our previous report through the link).

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Brazilian Center-South update

Brazilian Center-South update

Image 1:Sugar mix per fortnight (%)

Image 2: Lost days estimate per fortnight (No. of days)

Image 3: Cummulative TCH (t/ha)

Image 3: Crop Estimates Summary

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Weekly Report — Sugar

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