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Leaves and weeds provide sweetener for hard-up sugar mills

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When is sugar cane not sugar cane?

When it is a so-called "vegetal impurity".

It isn't just cane that mills crush, but bits of other plant matter too - largely cane leaves, but also weeds.

These additions offer little in the way of sugars for making sweeteners and ethanol. But that doesn't not make them unwanted or a nuisance.

Far from it. They contribute to the electricity that mills manufacture as a byproduct, but which, in a period of low sugar prices, is becoming an increasingly important part of their returns.

Indeed, electricity prices in Brazil have been buoyant, boosted by the dent to hydroelectricity production of poor rains which have boosted sugar and coffee market this year.

'Economic inventive'

So-called cogeneration may contribute only some 4-5% of a mill's revenues in Brazil's key Centre South region, responsible for about 90% of cane production in the top cane-growing country.

But in terms of earnings before interest, tax, depreciation and amortisation (ebitda), the contribution is some 20-25%, Plinio Nastari, president of consultancy Datagro, told Agrimoney.com.

"There is very little extra cost involved. Almost all revenue goes straight to ebitda," he said.

When many mills are in dire financial straits, as highlighted by Banco Itau BBA at the Sugar and Ethanol Summit, such extra takings could prove a lifesaver.

"There is an economic inventive not to control vegetal impurities," Mr Nastari said.

Too short to top

Not that mills have that much latitude for controlling the extra vegetation heading into mills, in the age of mechanised harvesting.

A rise of in levels of Centre South vegetal impurities of some 1.7% from last year's 6.5-6.7% volumes crushed, according to Datagro reflects largely the impact of the region's drought.

Weaker cane growth has increased opportunity for weeds, and has also meant that cane plants are often too short for mechanised harvesters to cut off their top leaves.

"That means the cane plants go into the mill with their tops on," increasing the vegetal impurity count, Mr Nastari said.

Sugar concentrations rise nonetheless

The impact of the vegetal impurities, which Datagro said had topped 10% at one case, is being masked in rates of sugars in cane by the boost to this reading from drought.

Industry group Unica in fact estimates the Centre sugar concentration reading, or ATR, up 1.2% so far in 2014-15.

"Because of drought, we see a stepped-up rate of ATR," the acronym for sugar concentrations, Mr Nastari told the sugar conference.

Nonetheless, the counting in of extra leaves and weeds may go some way to explaining a broader issue of ATR weakness which has been in train for years, with the figure dropping steadily from 140.5 kilogrammes per tonne of cane in 2010 to 133.3 kilogrammes last year.

"We have been wondering ATR rates have been in decline. This may be the answer," one executive at a major sugar group told Arimoney.com at the conference.

By Agrimoney.com

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