Higher prices favor sugar mix in Center-South Brazil

Sao Paulo — Raw sugar exports in the third week of February proved to offer a higher profitability for Brazilian producers than the hydrous ethanol, or E100, in the domestic market.

S&P Global Platts assessed hydrous ethanol converted in raw sugar equivalent at an average of 14.91 cents/lb in the week of February 10. This was at 38 points discount to the average settlement of the ICE March (H) NY11 sugar futures contract, which was at 15.29 cents/lb.

After almost 30 months of hydrous ethanol paying more in Center-South Brazil than raw sugar exports, the scenario started to change for Brazilian producers. A deficit global sugar crop for 2019-20 crop year -- which will end in September 2020 -- triggered higher prices in the ICE March (H) NY11 sugar futures contract.

The front contract March NY11 settled at the floor point at 15.04 cents/lb on February 10 and hit the ceiling at 15.78 cents/lb on February 12. Most of the upward price movement was seen while a well-recognized industry event was happening in Dubai and many decision makers were sharing their outlooks for the global market.

While sugar futures contract was moving sharply high, hydrous ethanol price in the largest consuming region of Sao Paulo state was following the same trend, however, not enough to offset the optimism seen in the international sugar market.

Platts assessed hydrous ethanol ex-mill Ribeirao Preto at Real 2,550/cu m on February 10 and the market rose to Real 2,580/cu m on February 13 and February 14. Since January 31, hydrous ethanol is quite often being traded at Real 2,580/cu m, which was the highest historical price ever traded.

Despite the record high price for hydrous ethanol, the weakness of the real against the dollar offset that uptick when converted to raw sugar equivalent.

Platts analytics estimates that Center-South sugar mix in the crop for 2020-21 -- which will end in March 2021 -- will reach 37.5%, up from 34.41% recorded in the current crop of 2019-20. However, many analysts said the sugar mix will move up to at least 40%, representing more than 30 million mt of sugar.