Sugar and Ethanol Monthly Report - 2024 02 01

With seasonally higher demand, especially considering the approach of the Ramadan festivities, prices moved back to the 24c/lb level but failed to surpass 24.5c/lb during January. Of course, Brazil keeps adding to the bears' side, being responsible for nearly the complete offset of the Northern Hemisphere absence. But a word of caution: the market is in a tight balance.

Moving from a deficit to a surplus, the global balance seems to be signaling a tight price range, with quite some volatility to be expected. Trade flows show the same: we are walking on thin ice. Any event, either bulls or bears, can trigger the price and bring funds back into the game. It seems that the market is quietly waiting for a signal, and analyzing some variables has become essential. The main one is weather: will it help a healthy 24/25 Center-South season?

Although we believe it is tittering to the bear side - so far it wasn't ideal but definitely not catastrophic - a drier-than-average summer could add to the bulls. Also, will we shift to a La Niña year? The latter is still quite premature to answer. However, assuming more "normal" weather, the market should remain stuck in this range for a while, but probably drive away from major price recoveries.

For the next season, weather hasn't been completely favourable for cane development, therefore, we should not expect crushing to reach the same levels as in 23/24. Currently, we estimate around 620 Mt of cane, which, when coupled with a higher sugar mix of nearly 51%, could lead to the Center South region's second-best sugar production level. Note that while there is a bullish risk regarding weather, investments in the crystallization process could induce higher sugar mix.

The region continues to receive above-normal rainfall, especially in Eastern Alagoas, which could hamper some mills operations. However, rains are welcome, as they can be beneficial for next year's sugarcane - if extended until its key development period.

This movement made us comfortable in keeping our nearly 32Mt sugar production estimates and no exports, especially given that the newly found availability drove ISMA to request another 1-1.2Mt sugar diversion permission.

We should keep in mind that mills started 10 days later than usual, however, the drought effects are more than confirmed. Our estimates remain unchanged from last report, with 8.2Mt of the sweetener being produced and only 5.3Mt exported.

Compared to their first estimates (nearly 6Mt for 23/24 and about 1.7Mt until January 20), sugar production already lags 500kt. The country has produced 1.2Mt of the sweetener to date. Compared to last season, the gap is lower by 120kt. So far, realized figures have met our expectations.

While cane areas were penalized by adverse weather, the agency predicts a record beet production during 23/24. This adds to the total sweetener availability guaranteeing lower than previously estimated imports.

Beet results couldn't come at a better time. Although the country will still need to diversify its import origins, because of Mexico's crop failure, stocks are not at a major risk.