Nov 23

Sugar and Ethanol Monthly Report - 2023 11 27

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"March contract is set to find support in market tightness during Q4/23 and Q1/24. Taking a glimpse at what to expect for Brazil's Center-South 24/25 crop, assuming weather normality during summer, the country could produce over 42Mt of sugar, especially considering recent investments in crystalization and the maitenance of a high sugar mix."

S&D and Trade Flow

India's zero export in 23/24 seems well accepted by the market. Meanwhile, Thailand's availability raised further concern after its government classified sugar as a controlled good.

However, Brazilian sugar is expected to keep flowing during Q4, with mills maximizing their sweetener production and working fast to crush as much cane as possible.

Port congestion given a rainier-than-average October has induced recent gains, but dryness is coming. March contract is set to find support in market tightness during Q4/23 and Q1/24.

Taking a glimpse at what to expect for Brazil's Center-South 24/25 crop, assuming weather normality during summer, the country could produce over 42Mt of sugar, especially considering recent investments in crystalization and the maitenance of a high sugar mix. That notion contributes to some long-term bearishness and supports the future's curve backwardation.

Image 1: Total Trade Flow ('000t)

Source: hEDGEpoint

Image 2: Raw's Trade Flow ('000t)

Source: hEDGEpoint

Image 3: White's Trade Flow ('000t)

Source: hEDGEpoint

Image 4: Global Supply and Demand Balance (MT RV oct-sep)

Source: hEDGEpoint

Brazil CS

Image 5: Sugar Balance - Brazil CS (Apr-Mar Mt)

Source: Unica, MAPA, SECEX, hEDGEpoint

Cane yields and area expansion during 23/24 are the main reasons behind the region’s excellent results. 
Recent price volatility is tight to the country’s ability to ship the sweetener. Port congestion due to a rainier-than-average October has induced recent gains, but dryness is coming.

Although some models predict lower rains during Brazil's summer, prospects for 24/25 cane developments are good. The country could produce over 42Mt of sugar next season, especially considering recent investments in crystalization and the maitenance of a high sugar mix.

Image 6: Total Exports - Brazil CS ('000t)

Image 7: Total Stocks - Brazil CS ('000t)

Source: SECEX, Williams, hEDGEpoint

Source: Unica,MAPA, SECEX, Williams, hEDGEpoint

Brazil CS Ethanol

Image 8: Otto Cycle - Brazil CS (M m³)

Source: ANP, Bloomberg, hEDGEpoint

Since the announced “end of PPI” in May 2023, ethanol prices have suffered a decoupling from international oil prices. 
The effects of government commitment to lower prices at the pump, coupled with higher feedstock availability have prevented ethanol prices from finding support.

Therefore, although fuel consumption is up, availability doesn't seem to be an issue. The nearly 300 USd/t price gap between products allows for further crystalization investments and a max sugar decision.

Image 9: Anhydrous Ending Stocks - Brazil CS ('000 m³)

Image 10: Hydrous Ending Stocks - Brazil CS ('000 m³)

Source: Unica, MAPA, ANP, SECEX, hEDGEpoint

Source: Unica, MAPA, ANP, SECEX, hEDGEpoint

Brazil NNE

Image 11: Sugar Balance - Brazil NNE (Apr-Mar Mt)

Source: MAPA, SECEX, hEDGEpoint

By the end of October, the region had produced 1.173Mt of sugar, according to MAPA. This represents a 7.8% increase Y/Y and is above the 10y average (980kt).
We revised our cane availability up to 61.3Mt. Allowing the region to reach 3.6Mt of sugar in the 23/24 crop season. This revision is a reflex of positive weather during cane development stage. Conversely, for 24/25, El Niño's dryer-than-average weather might impact the NNE's availability

Image 12: Total Exports - Brazil NNE ('000t)

Source: SECEX, hEDGEpoint

India

Image 13: Sugar Balance - India (Oct-Sep Mt)

Source: ISMA,AISTA, hEDGEpoint

The government should prioritize building stocks, allowing no exports, especially with the delayed crushing start. Instead of October, most regions started in November.
Bad weather contributes to lowering prospects regarding India’s total production. From our previous 31.4Mt, we revised down to 30Mt, meaning that the country will be able to restock only 1Mt. Note, however, that these figures consider about 3.5Mt ethanol diversion, lower than the realized during 22/23.

Image 14: Total Domestic Exports - India ('000t w/o tolling)

Source: ISMA,AISTA, hEDGEpoint

Thailand

Image 15: Sugar Balance - Thailand (Dec-Nov Mt)

Source: Thai Sgar Millers, Sugarzone, hEDGEpoint

No changes were made regarding our cane and sugar estimates. Cane area is expected to fall by around 5.6% in 23/24. Meanwhile, the cassava area continues an upward trend.

Image 16: Total Exports - Thailand ('000t)

Source: Thai Sgar Millers, hEDGEpoint

EU 27+UK

Image 17: Sugar Balance - EU 27+UK (Oct-Sep Mt)

Source: EC, Greenpool, hEDGEpoint

No changes were made to our 23/24 season estimates. 
Considering at least 1Mt diversion to ethanol, but adding the UK, we remain confident about a 15.5Mt production. Weather was positive for beet development but recent rains might disrupt the harvesting pace, which is a key factor to monitor.

Another worth-mentioning matter is that trade figures suggest lower imports than previously anticipated in 22/23.

Mexico

Image 18: Sugar Balance - Mexico (Oct-Sep Mt)

Source: Conadesuca, Greenpool, hEDGEpoint

As there were no signs of weather improvement, we revised our production down to 4.95Mt on 23/24. 
Sugar production in Louisiana, the state responsible for approximately half of all cane availability in the country, is expected to face a drop of nearly 18%.

We expect the dryness effects to be stronger than indicated by USDA. Therefore, instead of another year of close to 8.3Mt production, we estimate a sharper drop, to 8Mt, meaning that the country will need to increase its higher tariff imports.

Image 19: Total Exports - Mexico ('000t)

Source: Conadesuca, Greenpool, hEDGEpoint

USA

Image 20: Sugar Balance - US (Oct-Sep Mt)

Source: USDA, hEDGEpoint

According to NOAA, some sugarcane-producing regions, such as Texas and Louisiana, experienced drier than average weather. 
Sugar production in Louisiana, the state responsible for approximately half of all cane availability in the country, is expected to face a drop of nearly 18%.

We expect the dryness effects to be stronger than indicated by USDA. Therefore, instead of another year of close to 8.3Mt production, we estimate a sharper drop, to 8Mt, meaning that the country will need to increase its higher tariff imports.

Guatemala

Image 21: Sugar Balance - Guatemala (Oct-Sep Mt)

Source: Cengicaña, Sieca, Azucar.gt,Greenpool, hEDGEpoint

Looking at the SPI for the entire Central American region, the drier weather doesn’t seem to be an exception. In general, most producing countries in the Northern Hemisphere have faced climate adversity.
Guatemala production is expected to be lower than in 22/23, reaching only 2.4Mt. This reduction considers the country's irrigation capacity, estimated to not be at its maximum, as soil moisture in key producing states is lower than average.

Image 22: Total Exports - Guatemala ('000t)

Source: Sieca

El Salvador

Image 23: Sugar Balance - El Salvador (Oct-Sep Mt)

Source: Consaa, Sieca, Greenpool, hEDGEpoint

As in other Northern Hemisphere countries, El Salvador also suffers from EL Nino's climate adversity. Droughts are expected to prevent production recovery, being the same result from 22/23 the highest it could get.
Soil moisture in key-producing states also suggests that El Salvador's irrigation system is not working at its maximum capacity. As in Guatemala, the procedure relies on groundwater.

Russia

Image 24:

Source: Ikar, Sugar.ru, Greenpool, hEDGEpoint

The latest data from Soyuzrossakhar shows an increase in current sugar beet yields. 
According to sugar.ru, around 47.5 million tonnes of sugar beet could be harvested in the 2023/24 season. There is also only a slight drop in sugar yield from beets. Considering these two factors, the agency raised its current sugar production estimate to 6.85 million tons, possibly more.

Of these figures, around 6.55Mt would be produced directly from beet while 220-250kt from syrup and molasses. We revised our numbers up considering the conservative end of estimates.

China

Image 25: Sugar Balance - China (Oct-Sep Mt)

Source: GSMN, CSA, Refinitiv, Greenpool, hEDGEpoint

Obs: stocks also account for bonded warehouses volume and imports include syrup and smuggling estimates

China imported surprisingly 920kt of sugar in October. This volume accounts for a nearly 77% increase compared to 2022 and is above the 810kt level registered in 2021, when the import arbitrage was extremely favorable.
Simultaneously, the country started its 23/24 season, reaching 370kt of sugar, an improvement of 8.8% Y/Y. This trend strengthens the expectation of a recovery in yields and overall sugar production.

Image 27:

Source: GSMM, hEDGEpoint

Source: CSA, Refinitiv, Greenpool, hEDGEpoint

Weekly Report — Sugar and Ethanol

Written by Lívea Coda
[email protected]
Reviewed by Alef Dias
[email protected]

Sugar and Ethanol Desk

Murilo Mello
[email protected]
Etori Veronezi
[email protected]
Gabriel Oliveira
[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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