PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 16:20 UK, 6th Jun 2014, by Agrimoney.com
Mill woes, ethanol to limit Brazil's sugar revival

Brazil's sugar production, and exports, will not for at least another two years challenge their record highs set two seasons ago, the International Sugar Organization believes although ethanol output may jump.

The intergovernmental group - expanding on a forecast made last month that Brazilian sugar production will fall by 500,000 tonnes to 37.0m tonnes in 2014-15 - pegged shipments from the top exporting country at 25.5m tonnes.

That would represent a 1.1m-tonne decline on exports last season, which ended in March, and represent a three-year low.

Brazil's sugar production will see a small recovery in next year to 38.0m tonnes, enough to support exports of 26.5m tonnes, although these figure remain short of record highs set in 2012-13.

"Stagnation" in sugar output in the top producing country "may last at least until the 2015-16 season", the organisation said.

Mill closures

The data reflect ISO thinking that Brazil's sugar output will be curtailed by the impact of poor finances on its cane processing industry, much of which attracted investment on the basis of prices higher than the 16.78 cents a pound at which New York spot futures stood on Friday.

Marex Spectron, the London broker, estimates the cost of production at about 20 cents a pound.

"The number of mills in operation in Brazil is shrinking, the tools available for the government to help the industry are less evident, and many of the large milling groups are reporting higher debt," the ISO said last month.

Sergey Gudoshnikov, ISO senior economist, said on Friday that "each year, Brazil is losing 5-10 mills".

Fixed costs spread

However, the closures are at least improving prospects for remaining mills, in allowing them to raise their throughput and spread their costs over a larger volume.

"Brazil is processing more and more cane with less and less mills," Mr Gudoshnikov told Agrimoney.com.

The ISO also sees mills downplaying sugar and turning more cane into ethanol in 2015-16, producing a record 29.8bn litres, after keeping output flat at 27.5bn litres this season.

"However, these estimates are something of a moving target," Mr Gudoshnikov said.

"They are based on a number of assumptions, which could easily change."

Sugar vs ethanol

In fact, market values have moved against production of the biofuel short-term, with prices of anhydrous ethanol, on a sugar equivalent basis, falling from 18.39 cents a pound in April to average 16.61 cents a pound last month, the ISO said.

"Domestic crystal sugar prices were flat at 19.60 cents a pound."

The observation tallies that earlier this week of Cepea, which said that "crystal sugar remunerated 27% more than anhydrous ethanol in late May" in Sao Paulo, the top cane growing state.

Against hydrous ethanol, that used neat rather than mixed with gasoline, "the sugar advantage was 35%", said the research institute, which is linked to Sao Paulo University.

Cepea also said that the domestic sales were proving more lucrative than exports, with sugar going for R$51.28 ($22.97) per 50 kilogramme bag in Brazil's spot market, compared with the equivalent of R445.26 ($20.27 dollars) for delivery against ICE futures, including costs.

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