Brazil mill shutdowns settle sugar market nerves, after strong output data

Brazil’s key Centre South region produced more sugar than investors had expected in the second half of October, but pressure on prices was curtailed by the number of mills now running out of cane to crush.

Mills in the Centre South, responsible for more than 90% of Brazil’s sugar output, produced 1.51m tonnes of sugar over the fortnight, up 58% from the same period of last year.

The volumes was also well above the 1.38m-tonne figure that investors had expected, according to a poll by S&P Global Platts.

The extent of the output rise reflected in part an increase in the proportion of cane allocated to making sugar, rather than ethanol, of 2.0 points year on year to 32.1%, above the 30.9% figure investors had forecast.

Furthermore, the quality of cane beat expectations too, producing 151.5 kilogrammes of sugar per tonne of crop compared with the 148.8 kilogrammes forecast.

And the volume of cane crushed, at 32.6m tonnes, was nearly 1.0m tonnes above the trade forecast, besides being up 7.6m tonnes year on year.

Price reaction

Nonetheless, the immediate reaction of New York raw sugar futures to the report was, for the March contract, to recover from negative territory to a gain of 0.8% on the day, rising – temporarily – back above its 100-day moving average.

The contract eased back in late deals to 12.58 cents a pound, up 0.1% for the session.

Unica, besides reporting higher-than-expected figure for sugar production, which for 2019-20 is now running 3.3% above the year-ago level, also highlighted an early finish to the crushing season for many mills.

This after a cane crush which, at 542.9m tonnes, is running 6.3% ahead of the year-ago pace, and is already within sight of the total that many analysts have expected for the whole season.

The 2019-20 crushing season does not end until March, although most mills take a break starting around December, which often brings rainier weather.

Mill shutdowns

“By November 1 of this year, 67 Centre South units had ended the harvest, compared to 52 plants by the same date of 2018,” Unica said, with these closed mills responsible for about 20% of the region’s volumes.

By mid-November, the total number of closed mills is expected to reach 124, up 38 units, or 44%, year on year.

“The expectation is that this trend… will prevail over the next fortnight,” said Antonio de Padua Rodrigues, the Unica technical director, although adding that poor weather could change that assessment, in preventing harvesting of remaining cane.

Sugar vs ethanol

Despite the upturn in sugar production last month, ethanol remains mills’ preferred processing product, proving a more remunerative.

“The higher returns from and faster liquidity of hydrous ethanol in the domestic market over raw sugar exports has been encouraging mills to maximise their ethanol production,” S&P Global Platts said.

As of November 8, it estimated hydrous ethanol ex-mill Ribeirao Preto as priced at 13.99 cents a pound in raw sugar terms, while VHP sugar at the port of Santos for shipment this month was worth 11.68 cents a pound.

This meant that hydrous ethanol “was paying 231 points, or $50.93 a tonne, more than raw sugar at that point”.

‘Constructive on prices’

Separately, JP Morgan said it remained “constructive” on raw sugar prices, noting the US Department of Agriculture in Friday’s Wasde briefing cut its forecast for US production by 6% month on month, and for Mexican output by 5%.

The Mexican export figure was cut by 6%, or 100,000 tonnes, to 1.6m tonnes.

“World sugar output is declining and may yet fall below our 181m-tonne target through the season,” the bank added, restating an estimate of 2019-20 world sugar production deficit of 6.4m tonnes.