Brazilian hydrous ethanol in raw sugar equivalent reaches nearly five-year low

Santos — Brazilian hydrous ethanol in raw sugar equivalent was assessed at 9.87 cents/lb on Wednesday, a drop of 0.95 cent/lb from the prior day and at the lowest level since September 2015.

It was also the first time since S&P Global Platts launched this assessment on April 1, 2014, that hydrous ethanol in raw sugar equivalent settled below 10.05 cents/lb. The combination of the coronavirus' spread to Brazil and the collapse observed in the energy basket has been putting heavy pressure on hydrous ethanol, or E100, which has a strong correlation with gasoline prices in Brazil.

Producers from Center-South Brazil are just about to start the 2020-21 crop season, amid a market consensus that the sugar mix will move up from nearly 34.2% in the current crop to at least 40%, with a strong upside to 42%. However, not even the forecast reduction of 3 billion liters in total ethanol production has been enough to hold the price collapse in the energy basket.

Historically, Center-South producers start maximizing hydrous ethanol production over sugar due to favorable industrial reasons and faster liquidity in hydrous ethanol sales compared with sugar exports; however, that scenario might change with this crop.

Brazilian producers have taken advantage of a positive remuneration in the Brazilian real in the first two months of 2020 to increase the volume of sugar hedged for the 2020-21 crop and the next crop. The average price of ICE NY11 sugar futures contract in Real equivalent was at Real 1,374/mt in the first two months of 2020, almost 30% higher than the average recorded in the same period of 2019.

After almost three years of hydrous ethanol paying more than raw sugar exports for Brazilian producers, the scenario in the short and medium term looks to have changed.

In addition to the global concerns involving oil prices and the coronavirus pandemic, the Brazilian real devaluated more than 20% in the last month, pushing past the Real 5.00/$1 level on March 17, the lowest historical level observed against the US dollar.

The price impact for hydrous ethanol was minimized by a bullish fundamental picture, which was drawn during the whole 2019-2020 crop season. Total hydrous ethanol sales to the domestic market recorded 20.9 billion liters in the period of April 2019 to February 2020, a 9.1% rise year on year.

In the meantime, hydrous ethanol stocks at the end of February reached 1.99 billion liters, down 27% from mid-February and down 4% from a year ago, according to data from the Ministry of Agriculture.