July sugar futures contract rises 5.47% on week
Hydrous ethanol in raw sugar equivalent surges 3.82% on week
Brazilian decarbonization credit CBIO spikes 240% on year
In the first working day after a week of sugar market industry events in New York, thefront-month contractJuly (N) Sugar No. 11 futures settled at 19.68 cents/lb May 16, up 2.66% on the day and marking a surge of 5.47% or 102 points week on week, suggesting that after a few conferences and meetings market participants may have changed their perspectives in terms of sugar availability.
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In market events held in the prior week, sugar production estimated by trading houses ranged from 29-32 million tons. The lack of a consensus was mostly attributed to the sugar mix, which is how much from the total cane to be harvested will be converted into sugar or ethanol.
The latest estimates from S&P Global Commodity Insights projected Center-South Brazil sugar production for the 2022-23 crop period at 32 million tons, mostly unchanged from the 32.1 million tons of the prior crop but already 1 million tons lower than the initial forecast.
Considering the CS Brazil sugar availability range, which can vary by roughly three million tons, the global sugar balance from October to September can shift from a surplus estimated between 1.1 million tons up to 3.1 million tons toward a more balanced or even small deficit.
In the current CS sugar production estimated by S&P Global, the global supply and demand for the 2021-2022 crop period would be at 3.1 million tons, marking surplus cycle after a deficit of 1.55 million tons in the global crop period 2020-2021.
Although the strong price movement observed in the NY11 sugar future contract suggested that traders might be considering the low range of sugar production, the Brazilian cash premiums remained unchanged on May 16.
Platts Brazil Center-South VHP sugar for June shipment was assessed at a 6-point premium to the July (N) Sugar No. 11 Futures on May 11, unchanged on the day.
Brazilian crop
Brazilian sugarcane producers officially started the 2022-2023 crop period on April 1, however the sugarcane harvest pace was lower than usual in the first full month of crushing.
The industry association UNICA showed on its latest crop results report that, until the end of April, 180 units were crushing, down from the 207 seen in the same period of the prior year. The slow start has been attributed to the weather conditions observed since mid-2021, with a reduced volume of rain in the main producing regions encouraging producers to delay the harvesting season.
According to UNICA, 29 million tons of cane were crushed in April, down 35.8% on the year, which were converted into 1.06 million tons of sugar, a drop of 50.60% on the year, and into 1.49 billion liters of ethanol, a drop of 26.85% on the year.
Despite the high international sugar prices and a steep depreciated of the Brazilian real against the US dollar, Brazilian producers have been favoring ethanol production, and the sugar mix so far has lowered from 42.67% in the first month of the 2021-22 crop to 35.42% in the same period of the 2022-23 crop.
The production decision has been mostly driven by economic aspects. In addition to the well-known fast liquidity granted through the domestic hydrous ethanol sales, the high international fuel price, combined with the depreciated Brazilian real, has been supporting the E100 price too.
Platts assessed hydrous ethanol converted in raw sugar on at 19.86 cents/lb May 16, up 3.82% on the week and at a premium of 18 points over the July sugar future contract on May 16.
The price spike observed in the Brazilian decarbonization credit, CBIO, has also been supporting ethanol sales to the domestic market, as producers certified by the RenovaBio program can generate one CBIO per liter, which ranges according to the rate attributed to the production cycle. The fewer Co2 emissions during the biofuel production, the more CBIOs per liter sold that will be granted.
According to the Brazilian exchange B3, the CBIO price spiked to Real 102/CBIO on May 13 from Real 30/CBIO a year prior, showing a spike of 240% on the year.
While Brazilian light fuel demand has many red flags attributed to the high domestic inflation and unemployment rate, its growth was still expected to range from 0.92-2%, a positive sign for Brazilian producers who can still shift more cane toward ethanol.
