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US officials stand by Brazil cane crush forecast, amid debate over frost losses

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US officials, in a briefing forecasting slower growth in Brazilian ethanol output, stood by expectations for the cane harvest in Brazil’s key Centre South region, amid a market debate on the impact of frosts.

 

The US Department of Agriculture’s Sao Paulo bureau acknowledged that “expectations for better agricultural yields” of cane in the Centre South, after rains earlier in 2019, “have been frustrated by the freeze that occurred in some growing states in July”.

 

Brazil was in early July hit by a frost that reportedly affected most the southern state of Parana, but also hurt some cane, and coffee, crops further north in the likes of Mato Grosso do Sul, Sao Paulo and Minas Gerais.

 

Nonetheless, the bureau stood by an expectation of a Centre South cane crush up 7m tonnes year on year at 580m tonnes in 2019-20, on an April-to-March basis, reflecting the rainfall boost.

 

“In spite of the dry weather spell in December and January, steady rainfall during February and March has offset industry expectations for a drop in the current harvest season.”

 

‘Reached about 400,000 hectares’

The comments come amid a debate over the impact of the frost, which industry group Unica said last month had “reached about 400,000 hectares of sugarcane plantations in the Centre South”.

 

In some parts, the freeze “impacted almost 50% of the cultivated area”, lowering expectations for cane yield and quality, and potentially bringing a loss of 5 tonnes per hectare in yields in affect acres, Unica said.

 

However, not all observers are convinced that the frost caused a substantial loss overall, with Archer Consulting last week lifting its Centre South cane harvest forecast by 7m tonnes to 582m tonnes, citing favourable weather.

 

Miller reports

Reports from mills are mixed too, with Sao Martinho, for instance, last week standing by its forecast of a 22.0m-tonne cane crush this season, despite seeing 12,000 hectares of crop “impacted” by frost.

 

“Fortunately, it was a very light frost, different from a couple of years ago,” Felipe Vicchiato, the Sao Martinho finance director, told investors.

 

“We have already closed all the harvest of these hectares, so with minimum impact on our yield.”

 

However, Adecoagro revealed that, thanks to dryness as well as frost, it was ditching expectations of growth in its cane crush this year, equivalent to a downgrade of about 5% in volumes, with the weather setbacks offsetting the boost from a 14,000-hectare increase in cane area.

 

Cane vs corn

The USDA bureau’s comments came as it forecast growth of 1.30m litres to 34.45bn litres in Brazil’s ethanol production in calendar 2019 – well below the expansion of 4.90m litres the year before.

 

And of this year’s growth, much was expected to come from plants using corn as feedstocks, rather than the cane that Brazil has traditionally championed, and which remains by far the most popular raw material.

 

“Total ethanol production from corn in 2019 is estimated at 1.5bn litres, and increase of 609m litres compared to 2018,” the bureau said.

 

While Brazil currently has 10 plants producing corn from ethanol – either as the sole feedstock, or able to switch from cane – there are a further four under construction, and set to begin operating in one or two years, and with seven further sites in the longer-term pipeline.

 

Trade outlook

The relatively flat ethanol output forecast reflects expectations that Centre South mills will allocate 36% of cane to making sugar rather than the biofuel, little changed year on year.

 

“The projected increase in the deficit in the world sugar market to 6m-7m tonnes for 2019-20 did not send a strong enough price signal to divert more sugarcane towards sugar production,” the bureau said, while technical factors limit many mills from further raising ethanol allocations.

 

Brazil’s ethanol exports in2 019 were forecast at 1.65bn litres, up 30m litres year on year, supported by “spikes” in prices of rival US supplies.

 

Imports, which come almost exclusively from the US, were forecast tumbling by 495m litres to 1.2bn litres, with the bureau noting that “the increased ethanol supply in the domestic market will likely lead to decreased” volumes.

 

“Current price spikes in the United States have also limited trade, but not sufficiently to prevent imports from the US, even with the 20% import tariff paid on imported volumes above the quarterly 150m-litre tariff rate quota.”

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