FEATURE: First CS Brazil production numbers show a sweeter crop

Santos — The Center-South Brazilian sugarcane crop year started on April 1 and the first two weeks of the harvest saw 948 million mt of sugar produced, a surge of 179% year on year.

The figure exceeded the consensus expectations of analysts surveyed by S&P Global Platts, which predicted a total of 798 million mt.

The official figures released trade association UNICA indicate that despite weak sugar and ethanol prices and the social isolation measures imposed in Brazil due to the coronavirus pandemic, mills were able to crush 22.38 million mt of cane, a 61% increase compared with the first two weeks of April 2019.

In total, 178 plants started crushing in the first half of April, or 21 more plants than in the same period of 2019. Of the total operating, six were using corn as the feedstock for ethanol production. According to UNICA, more 32 units were planning to start crushing in the last two weeks of April and more 29 in May. "It is relevant to remember that 20 units postponed the start of their activities due to the current uncertainty" due to the pandemic, said Antonio de Padua Rodrigues, UNICA's technical director.

Soft fuel demand and a plunge in ethanol prices encouraged Brazilian producers to alter the pattern observed in the last two years and divert more cane to the production of sugar in the front half of April.

Of the cane crushed, 39.69% was used to produce sugar, up from 23.49% in the same period in 2019, and the balance or 60.31% was converted into ethanol.

Despite the decrease in ethanol's share of the cane crush, total ethanol production was 982 million liters, up 32.7% year on year. The additional volume of cane crushed and an increase in corn ethanol production offset the reduction in its share of the mix.

Production of hydrous ethanol, the Brazilian standalone biofuel E100, increased 20.44% year on year to 802 million liters while output of anhydrous ethanol, which is used in Brazil to meet the 27% mandatory blending level for gasoline, surged 142.65% to 180 million liters.

Producers felt encouraged to increase anhydrous ethanol production since ex-refinery gasoline prices have dropped more than 52% since January 1, which would indicate higher gasoline A and anhydrous demand in April.

Ethanol sales and the pricing environment

Historically, Center-South production maximizes hydrous ethanol output as opposed to sugar production, due to favorable industrial factors and greater liquidity in hydrous ethanol sales compared with sugar exports. However, that scenario has changed so far for the current crop year.

Domestic hydrous ethanol sales reported by Center-South mills totaled 560,476 cu m, down 35.8% year on year. In addition to the decrease in the volume sold, the average price plunged. Platts' hydrous ethanol ex-mill Ribeirao Preto assessment – including taxes – averaged Real 1,719/cu m in first two weeks of April, down 23% from the same period of 2019. According to Platts calculations, the hydrous ethanol sales income in H1 April totaled about Real 963 million, compared with Real 1,945 billion in the same period of 2019.

Although ex-refinery gasoline prices have slumped more than 52% since the beginning of the year, the total discount was not available to consumers, meaning that drivers may keep favoring the biofuel.

Hydrous ethanol retained an economic advantage over gasoline in southeast and center-west Brazil, weekly data showed. In the week that ended April 25, the hydrous ethanol price ratio to gasoline in the southeast of the country was 65.28%, down from 65.86% in the prior week, according to data released Monday by the National Petroleum and Biofuel Agency.

In the Center-West, the higher volume offered from corn ethanol plants based in Mato Grosso and sugarcane plants in Goias lowered the average hydrous ethanol price for consumers in the region to Real 2.602/liter, some 66.87% of the price of gasoline in the region, compared with 68.43% in the prior week.

In 2019, the two regions accounted for 18.7 billion liters of hydrous ethanol consumption or 83% of total Brazilian consumption.

Hydrous ethanol typically offers an economic advantage over gasoline when its price is below the 70% threshold due to the lower energy content. Consumers with flex-fuel vehicles can fill their tanks with either gasoline, which has a 27% blend of anhydrous ethanol, or E100.

While domestic hydrous ethanol consumption collapsed, exports in the period jumped from zero to 37,354 cu m. The combination of a drop in domestic price and steep depreciation of the Brazilian Real could trigger a new outlet for producers.

Platts' hydrous ethanol ANP standard FOB Santos assessment fell from $534/cu m on January 2 to $274/cu m on April 29, a drop of 48.7%, which may be supporting an increase in export demand.