Sugar and Ethanol Monthly Report - 2024 03 28

At the same time that the market has become more pessimistic regarding the Brazilian CS 24/25 crop season, the Northern Hemisphere's 23/24 prospects have improved, making it easier to remain on the optimistic side for 24/25 in terms of the region's availability. Europe is one of the key regions acting on the bearish side, with higher imports from Ukraine being allowed. The latter is expected to have higher sugar availability given the price advantage of beet over grain, allowing exports of 800 kt to 1 mt in 24/25.

The EU approval of no tariffs on Ukrainian sugar could allow up to 650kt to be imported to the region, pressuring domestic prices and the white contract. As a result, one could expect the EU to be participating more eagerly in the international market. This trend could be seen throughout the rest of 23/24 and into 24/25 (Oct-Sep), as beet area is also expected to increase during the region's new crop.

Therefore, bulls have been battling bears daily, with prices remaining in a tight range and failing to move back above 23c/lb.However, despite this bearish pressure, the market remains on the verge of another deficit year. Demand is expected to remain resilient, especially given the recent price correction. An example of this is China's eagerness to buy sugar every time its prices fall back to the 20.5c/lb level - opening the non-producer region's arbitrage. In addition, lower availability from Brazil is already given, despite its well-known efforts to maximize sugar, while the 24/25 Northern Hemisphere's crop recovery is still highly dependent on weather. 

Therefore, we believe it is too early to forecast cane volumes below 600 Mt. Despite the return to more typical yields, the 24/25 season is unlikely to be a major failure, remaining within the higher range of cane and sugar production observed in previous years. By analyzing proxy regions, taking into account rainfall patterns, we estimate that approximately 30% of the Center-South's cane production received average rainfall, while 23% experienced below-average levels and roughly 47% recorded minimal levels. Taking all factors into consideration, including historical trends and market forecasts, the Center-South region could see an 8.4% decrease in yield, reverting to a more typical TCH of nearly 79 t/ha and around 605.8Mt of cane.

In the April-March period, the region has produced 3.2 Mt of sugar, suggesting a potential to nearly reach 3.5 Mt. However, it's worth noting that we have revised our cane availability down to 61 Mt due to the various issues faced by the region between December and the end of February.

This upward revision suggests that the country could replenish its sugar stocks by around 3.5Mt and contrasts with the initial market expectations, which estimated production to be under 30 Mt at the season's outset. Despite reports of reduced planting in the southern Indian states for the 24/25 season due to drought conditions, AISTA highlights that sugarcane remains the most profitable crop for the average Indian farmer. Therefore, we remain optimistic.

A modest 2% reduction could be offset by higher yields if weather conditions cooperate, particularly if La Niña's impact proves to be less severe. In such a scenario, India could potentially redirect 5.5Mt of sugar towards its ethanol program without depleting its stock reserves. Subsequently, the decision to export approximately 1Mt or to allocate it to domestic stocks would hinge on prevailing domestic and international price dynamics and government policies. 

However, despite the impressive production figures, exports are still lagging. Data up to the end of January indicate a decline of 37% in exports compared to the previous season, totaling only 696 kt. A significant portion of this volume, approximately 350 kt, consisted of refined sugar exports.

Currently, we estimate that Mexico will need to import at least 500kt to keep stocks stable and participate in the global trade flows offering little over 600kt as exports. This is especially worrying for its main trading partner, the US, which has already started re-directing its TRQ.

However, as many other Northern Hemisphere countries, there is a silver lightning. Weather is the key to a recovery in 24/25.

As a result, part of the sugar beet piles had to be discarded and the situation made pile management more challenging in some regions. Also, the sucrose recovery extraction was reportedly lower from last month, impacting total production estimates directly.

Lower expected imports from Mexico also impacted the total sugar supply. The combination of both, lower production, and availability from the US’ key trading partner, offset the higher raw sugar tariff-rate quota (TRQ). During March, the USDA increased raw sugar TRQ by 125kt, however, the USTR has not yet published the country allocation. The TRQ volume remains unchanged and at record-high levels.