Sugar and Ethanol Monthly Report - 2024 05 03

The market has shifted towards a more bearish momentum. Not only are global conditions challenging for agricultural commodities due to slower inflation correction and a strong dollar, but sugar fundamentals have also weakened.

In the Center-South region, 24/25, although smaller than the record 23/24 crop, is expected to be the second best in terms of cane volume and sugar production. Furthermore, results in the Northern Hemisphere for the current crop have improved, with prospects for 24/25 signaling a recovery in the region. India's recent approval to divert a further 800kt to ethanol indicates that the country's sugar availability is better than initially thought. The Indian Meteorological Department forecasts a slightly above-average 2024 monsoon, which could positively impact sugarcane development and induce yield recovery. Consequently, India might return as an exporter next season, especially if prices remain above their parity level.

Weaker overall demand has prevented prices from rebounding above 20c/lb. China, a key importer, supported prices above 20.5c/lb in Q1-24; however, with domestic production increasing and substantial imports already made, the country may become less inclined to import sugar, potentially driving the Chinese arbitrage closer to a no-premium level around 18c/lb.

With increased global supply, India's exporting parity might determine the price floor for 24/25. Presently, considering premiums and costs, the market would need to offer over 19c/lb to attract Indian millers.

Regarding trade flows, India's approval of exports to the Maldives and potential exports from Pakistan (close to 700kt) this season suggest a shift towards a more bearish trend. Brazil is expected to supply ample sugar to the global market until the end of Q4/24. The projected deficit in Q1/25 is relatively small, as the Northern Hemisphere is anticipated to recover, indicating that without significant adverse events, short- and medium-term price reactions are likely to be subdued.

Compared to 23/24, the record crop, it will be a big retraction to remain between 605 and 610Mt of cane, but historically, it is a healthy result.

Given the investments made in the crystallization process, one could expect the sugar mix to go up to 52%, inducing a lower impact on the sweetener's volume - only a 600kt retraction. The risk regarding these figureslies in the timing of the new installations: will the new sugar factories (capacity) operate throughout the entire season? This could impact sugar mix. But so far, we remain optimistic in terms of availability and, thus, Brazil is the main bearish player in the coming months.  

Looking at the 24/25 season, we remain optimistic. As discussed before, recent rainfall suggests a positive outlook, allowing us to maintain our cane estimate of 63 Mt. Although sucrose content may not see a significant increase due to ongoing rainfall, we anticipate improvements in sugar availability. Mills have invested in crystallization capacity, aiming for a mix approaching 49%, which could result in an estimated sugar production of 3.7 Mt during the period, a 6% improvement compared to 23/24.

Going from a "we will possibly need to import" to a "please let us export or divert raw material" impacted the market in the most bearish way possible, helping raw sugar prices to trade below 20c/lb. In the end, the government obliged, allowing 64.5kt to be exported to the Maldives and another 800kt to be diverted to ethanol.

Ethanol diversion, therefore, reached a total of 2.5Mt, which is not enough to maintain the expected pace of the biofuel program, but will allow an improvement in the 11.6% blending achieved until January 2024. By the end of the season, we expect stocks to recover to the 6Mt level.

For 24/25, weather prediction improvements allow us to expect higher sugar production and ethanol diversion. Regarding biofuel, the country could recover the ethanol program pace by diverting 5.5Mt aiming to achieve the 20% blending mandate. As for sugar, even after this diversion, the country could still export around 1-1.5Mt keeping stocks rather stable.

Looking ahead to the next season, despite reports of exceptionally high temperatures, Thailand's sugarcane is expected to withstand these conditions given the sufficient water supply. The Thai Meteorological Department forecasts reduced precipitation in May but anticipates a healthy amount of rainfall during June and July, which contributes positively to the recovery expected in the 24/25 season.

Combining these weather conditions with 23/24's final results and sustained competitive prices for sugarcane, we anticipate an increase in cane volume to 98 Mt in the 24/25 season, resulting in an estimated sugar production of 10.50 Mt. It's important to note that this projection remains below the 11Mt achieved in the 2022/2023 season, despite the capacity for 14Mt.

In terms of global trade participation, Mexico has exported only 338 kt thus far, marking a nearly 40% reduction compared to the 22/23 season and a significant 57% drop compared to the 21/22 when the harvest was robust.

It is worth noting that the fall in production has also led to a decrease in domestic sales, with retail prices rising and peaking at the start of the 23/24 crop. Consequently, the reduction in exports and domestic consumption has resulted in lower import volumes compared to the previous season.

Looking ahead to the 24/25 season, initial forecasts for beet planted acreage were released by the National Agricultural Statistics Service (NASS), reflecting growers' intentions. Farmers are planning to plant 1.129 million acres of beets, marking a 1.6% increase from the previous year's intentions. However, when compared to 23/24 final acreage, this represents a 0.7% reduction. USDA notes that since final planted acreage could potentially be higher than intentions to offset losses, the 1.6% increase is a reliable indicator of the crop's trajectory.

In terms of cane sugar, USDA predicts that 24/25 will be the second largest crop in recent years, following behind the 20/21 season.