Brazilian Center-South sugarcane production in the crop year 2021-22 (April-March) reached a cumulative of 304 million mt on Aug. 1, a drop of 7.31% on the year, showed data released by the Industry Association, UNICA on Aug. 10. The volume was the lowest crushed within the same period since the crop year 2017-18 when 298 million mt were crushed.
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The production data was officially released by UNICA at 11 am Sao Paulo time and triggered a price rally in the international sugar market and an additional price support for the domestic ethanol market, which broke a new historical high on the same day.
The ICE NY11 sugar futures front contract, October, settled Aug. 10 at 19.59 cents/lb, a daily spike of 5.89% and at the record high settlement for a front contract since March 2, 2017, when it settled at 19.66 cents/lb.
In addition to the flat price increase, the October/March (V/H) spread narrowed to minus 35 points, from minus 54 points in the prior day. The smaller inter-month spread, combined with the flat price movement, was a strong suggestion that market participants were concerned about the sugar availability for the last quarter of 2021.
S&P Global Platts analytics pointed to an estimated total sugarcane production in CS for crop year 2021-22 at 530 million mt, while a trading house has recently published an estimate between 490 million mt and 500 million mt.
As sugar exports have been paying a wide premium over ethanol in the domestic environment, CS producers have been financially motivated to maximize sugar production since the prior crop cycle in 2020-21. However, even with 46.19% of the total cane crushed so far in the crop being moved toward sugar production the cumulative production lowered 7.68% on the year to 18.2 million mt.
Ethanol production and price impact
Ethanol price is promptly reacting to the bullish environment following a lower crop that points to at least 12.4% drop in the sugarcane feedstock, along with maximized sugar production and higher fuel demand which is estimated to increase nearly 5% in the current crop year.
CS Brazil total ethanol production from April 1 to Aug. 1 dropped 3.41% on the year to 14.1 billion liters, showed UNICA. From the total production, 8.82 billion liters were diverted to the E100, hydrous ethanol production, down 14.86% on the year and the balance of 5.28 billion liters were diverted to anhydrous ethanol, a lift of 24.60% on the year.
Producers have been maximizing anhydrous production since September 2020, when the fuel consumption pattern shifted toward gasoline demand, as the E100 cost had an exponential increase in the country.
Brazilian total gasoline sales from January to June increased 17.4% on the year, showed latest data released by the National Agency of Petroleum, Gas and Biofuels, ANP.
Anhydrous ethanol is used in a 27% mandatory blend in the Brazilian gasoline, therefore any increased gasoline demand, will trigger the same anhydrous movement.
S&P Global Platts assessed hydrous ethanol ex-mill Ribeirao Preto at Real 3,775/cu m Aug. 10, the historical high level and a surge of 86% on the year, while anhydrous ethanol closed at Real 3,745/cu m or at a premium of 15.03% over hydrous in the spot market, after excluding taxes.
Despite the price uptick in the hydrous ethanol, sugar in the export market was still paying a premium over the E100 in the domestic market. The ICE October NY11 sugar futures contract settled Aug. 10 at a 1.75-cent premium to hydrous ethanol in raw sugar equivalent.