Sep 2 / Lívea Coda

Crop Forecast: Sugar Center-South

  Back to main blog page

"Sugar production estimates reduced from 40.8 Mt to 40.3 Mt for 24/25, contributing to a tight supply during CS’s intercrop, supporting the sweetener."

Crop Forecast: Sugar Center-South

  • Center-South mills have struggled to direct over 50% of available raw material into sugar production, resulting in a revised sugar mix down to 49.13%. Total Recoverable Sugar (TRS) is anticipated to end the season higher than originally expected, at 140kg/t. However, reducing sugar (RS) concentration should remain an issue.

  • Sugar production estimates reduced from 40.8 Mt to 40.3 Mt for 24/25, contributing to a tight supply during CS’s intercrop, supporting the sweetener.

  • Meanwhile domestic biofuel prices are expected to struggle due to increased ethanol production, resulting in a more comfortable-than-usual ethanol availability during the Brazilian summer.

  • The 2025 sugar contracts are likely to enter a bullish trend as CS’s intercrop period approaches, with sugar prices expected to range between 20 to 24, influenced by market fundamentals and potential global sugar availability revisions. Ethanol may have peaked at 16 cents, considering Cbios.

As discussed in previous reports, we have revised our estimates for Center-South’s total cane availability down from 620Mt to 614Mt (link). We understand that this may still be seen as optimistic by many analysts and that there is indeed some downward pressure, especially after the recent fires. However, Total Cane per Hectare (TCH) has shown considerable resilience. Even assuming a similar correction to cumulative TCH compared to 21/22, the last "sudden-death" year, it is important to recall that the Normalized Difference Vegetation Index (NDVI) indicates a better outlook. Therefore, the only revisions made after the latest Unica report were to the sugar mix and cane quality, measured by the Total Recoverable Sugar (TRS).

The fact that mills were only able to direct 49.27% of the available raw material into sugar production during the first half of August, compared to 50.82% in the same period of 23/24, confirms the challenge of reaching above 50% by the end of the season. Considering the already evident cane quality issues, driven by the higher concentration of Reducing Sugars (RS), which are less favorable for sugar production, along with the impact of recent fires, we have revised our sugar mix down to 49.13%.

Image 1:NDVI Anomaly evolutiuon from 2021 to 2024

Source: USDA| GADAS - Modis AQUA 8 Day NDVI Anomaly, Hedgepoint

Image 2: Cummulative TCH (t/ha)

Source: Unica, CTC, Hedgepoint

TRS reached 151.09 kg per ton of sugarcane in early August, a 1.25% increase compared to the 23/24 season. Cumulatively, the index stood at 135.15 kg per ton, close to the previous cycle's level. While recent dryness and fires could further boost its levels, leading us to revise it to 140 kg/t, it's important to note that this may not translate into more sugar production, as RS content is expected to remain higher than anticipated.

These adjustments combined result in a reduction from 40.8Mt to 40.3Mt of sugar for the season, reinforcing the predicted tightness for the intercrop period and adding support to sweetener futures, particularly the March contract.

While this indicates a bullish trend for sugar, domestic biofuel prices could struggle to recover even with a stronger demand. Typically, a sudden-death scenario would extend the intercrop period, and during a year with a max sugar mix, this would lead to tighter ethanol availability during the Brazilian summer, providing some price support. However, the lower cane quality and the accelerated crushing pace caused by the fires might lead to increased ethanol production, as per the revised sugar mix. This pushes away any worries regarding ethanol’s stock and acts like a bearish force.

Image 3: Anhydrous (left) and hydrous (right) stocks – Brazil CS (M m³)

Source: Unica, MAPA, ANP, SECEX, Hedgepoint

Consequently, it is unlikely that mill decisions regarding sugar mix will change in the near future. We are potentially entering a second consecutive year with end-of-season ethanol stocks surpassing the average. This suggests, at least preliminarily, that the 25/26 season should be another max-sugar year, particularly given the downward pressure on Brazilian cane availability for the current crop and the positive spread between its subproducts, which should increase taking into consideration each market’s fundamentals.

A partially recovered Northern Hemisphere production will not be sufficient to offset a slight deficit in the sugar’s trade flows. Additionally, the first contracts for 2025 are expected to receive some support as we approach the CS’s intercrop period. A price range of 20 to 24 cents per pound appears feasible for sugar, while ethanol may have already peaked at 16 cents per pound, considering the Cbio factor. Any further restrictive revisions to global sugar availability could push this price range higher.

Image 4: Sugar mix vs global S&D and prices (% | Mt | c/lb)

Source: GreenPool, Hedgepoint


In Summary

Center-South mills are struggling and failing to achieve a sugar mix above 50% for the 24/25 season, prompting us to revise our end-of-season figures to 49.13%. This adjustment, along with a prior revision of cane availability, has led to a decrease in sugar production estimates from 40.8 Mt to 40.3 Mt, even after an increase in the TRS. The reduction results in tighter supply during the intercrop period. Despite the higher TRS, challenges related to reducing sugars concentration, driven by droughts, and the recent fires are the primary factors justifying the reduction in sugar mix. Domestic biofuel prices are expected to face pressure due to increased ethanol production, leading to a more comfortable ethanol supply during the Brazilian summer. As the intercrop period approaches, a bullish trend is anticipated, with sugar prices projected to range between 20 to 24 cents per pound, influenced by market fundamentals and revisions in global sugar availability. Ethanol prices may have peaked at 16 cents per pound.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com
www.hedgepointglobal.com

Disclaimer

This document has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes, without the purpose of instituting obligations or commitments to third parties, nor is it intended to promote an offer, or solicitation of an offer of sale or purchase relating to any securities, commodities interests or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. The trading of commodities interests such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors.  Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgement and outside advisors before entering in any transaction that are introduced by the firm. HPGM and its associates expressly disclaim any use of the information contained herein that directly or indirectly result in damages or damages of any kind. In case of questions not resolved by the first instance of customer contact (client.services@hedgepointglobal.com), please contact our internal ombudsman channel (ombudsman@hedgepointglobal.com) or 0800-878- 8408/ouvidoria@hedgepointglobal.com (only for customers in Brazil).

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