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Biosev lowers bar on forecasts for Brazil Centre South cane crush in 2018-19

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Biosev underlined expectations of a further fall in cane output in Brazil’s key Centre South region next season, at a time when the country’s prices are already reviving strongly, spurred by a switch to making ethanol.

 

Rui Chammas, the Biosev chief executive, forecast a 586m-tonne cane crop in Brazil’s Centre South region in 2018-19, on an April-to-March basis, a drop of 13m tonnes from the 599m tonnes expected this season.

 

Indeed, the forecast would represent a third successive year of decline from the record 617.7m tonnes crushed in 2015-16 in the Centre South, which is responsible for some 90% of Brazilian sugar output.

 

The estimate was also below estimates from many other commentators, with FC Stone putting the 2018-19 cane crop at 587.5m tonnes and Datagro at 580m tonnes, while Archer Consulting in October put volumes at 591m tonnes, and Agroconsult in September unveiled a 610m-tonne figure.

 

’Fires and irregular development’

 

The declining trend of forecasts reflects in part the knock-on effects of dry weather, as highlighted by Datagro, whose chief executive Plinio Nastari last month said that “we had up to 120 days without rains in some areas this year.

 

“That caused fires and irregular development of cane fields.”

 

However, Biosev’s Rui Chammas flagged also reduced investment in cane fields, in terms of replanting and inputs, prompted by weaker sugar prices.

 

Indeed, he said that weak returns had meant that smaller rival Renuka “fired a lot of people and might not operate next year”, following reports that the Brazilian subsidiary of Indian giant Shree Renuka Sugars had axed 900 workers from its two plants and returned land to cane owners.

 

’Staggering price rise’

 

Still, Mr Chammas flagged the potential for support to sugar prices from the squeeze on Centre South sugar output from a reduced cane crop and a shift by mills to processing more cane into ethanol, rather than sweetener, thanks to increased energy costs.

 

Biosev, which is controlled by agricultural commodities trading giant Louis Dreyfus, foresees Brazilian demand for ethanol being whetted by economic revival besides by more buoyant global fuel costs, and a policy by Petrobras of adjusting gasoline prices in line with worldwide values.

 

Already, Brazilian sugar prices are rallying strongly, with values in the main producing state of Sao Paulo up 19.4% last month, according to research institute Cepea, which termed the rise “staggering”, and said it represented the strongest November performance on data going back to 2003.

 

“This price recovery is linked to signs that sugar cane crushing will end earlier this season,” said Cepea, while noting that “recent rains have delayed activities”, so making for later shutdowns.

 

“Some mills have even reduced sugar volumes for sale in the spot market, prioritising sugar delivery purchased through contracts.”

 

Indeed, with sales to the spot market being squeezed, prices of crystal sugar have since September traded at a premium to those of exports, a gap which has now “widened to R$10.00 per 50-kilogramme bag”, Cepea said.

 

‘Difficult to be optimistic’

 

Nonetheless, some commentators were downbeat over prospects for global sugar prices despite the potential for a Brazilian Centre South slowdown.

 

Nick Penney, senior trader at Sucden, said that “the consensus is formed on a strong global demand/supply sugar surplus for 2018-19 based on good northern hemisphere crops and reduced Centre South sugar production.

 

“It seems difficult to be optimistic for the sugar bulls.”

 

Marex Spectron flagged operational limits to how significantly Brailian mills can switch cane to making ethanol rather than sugar, whatever the price incentives.

 

“A lot of analysts in Brazil believe that the sugar mix cannot in practice go much below about 43%, and thus that sugar production is unlikely to go much below say 32m or 33m tonnes,” the London-based trading house said.

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