April 15, 2021
S & P Global Platts | https://bit.ly/3gp3FXa
Amid market concerns for a drop in Brazil Center-South sugar production, the S&P Global Platts assessment for the May shipment period, FOB Santos settled April 15 at 16.39 cents/lb, up 6.64% on the week and a surge of 62.92% on year.
The front contract May (K) of the ICE NY11 sugar future contract rose 11.35% between April 1, the first official day of the 2021-22 Center-South crop and April 15, as talks about a crop reduction in the world's largest sugar producing region are becoming more frequent.
While some traders suggested that CS Brazil could have less cane than initially estimated to crush and therefore less sugar would be producerd, others argued that even with less cane, the total sugar would remain near to the 36 million mt mostly estimated in the market.
Traders not worried about lower sugar availability suggested that despite the possible cane crush drop, the ATR would be favorable to maximize sugar production and guarantee the expected supply.
The last update from S&P Global Platts Analytics, on March 26, pointed to a CS sugar production in the 2021-22 crop at 35.6 million mt, down 7% on year, while cane crush was estimated at 590 million mt, down from 606 million mt crushed in the prior crop.
To measure the crop size in the first 15 days of the new crushing season is difficult; therefore any strong volatility, such as observed in the last three days in the NY11 sugar future contract, is more likely to be reflecting a technical movement, where trading houses and hedge funds are changing their positions.
Ethanol supply impact
If the market concerns are correct, and CS Brazil has less cane to be crushed and producers keep maximizing sugar production to commit with their long-term contracts, the second main point is how the domestic ethanol demand will be supplied.
In a scenario of 590 million mt crushed in the 2021-22 crop, Platts Analytics estimates a total cane ethanol production at 25.8 billion liters, a drop of 2 billion liters on the year, which will be partially offset by an estimated increase of 731 million liters in the corn ethanol supply, but still lowering by 1.27 billion liters the total Brazilian ethanol supply.
Adding to the domestic shortage perspective, Brazil is unlikely to import large volumes of anhydrous ethanol in 2021, as the steep depreciation of the local currency against the US dollar kept the import arbitrage from US closed since August 2020.
According to Platts calculation from April 9, anhydrous ethanol imported from US, including the 20% import tariff, could land in Suape at Real 4,761/cu m, or Real 1,891/cu m higher than Platts DAP Suape assessment.
Despite the ethanol supply concern, producers are still financially encouraged to maximize sugar production as the international market is still paying a high premium for it over ethanol.
Platts assessed hydrous ethanol converted in raw sugar equivalent on April 15 at 14.15 cents/lb, a discount of 224 points or $49.38/mt to sugar export.