Copersucar lowered its forecasts for the Brazilian cane harvest to 580 million tonnes from 595 million tonnes due to frost and higher rainfall. However, sugar production figures were raised to 33.5 million tonnes from earlier estimates of 32 million tonnes due to a greater switch from ethanol production to sugar as a result of the depressed Brazilian currency. Copersucar added that returns from sugar production and exports were 10% to 15% higher compared with anhydrous ethanol production.
Unica’s forecast for sugar production is 35.5 million tonnes while Canaplan’s latest forecast is 34.5 million tonnes. So Copersucar may have undershot in its earlier estimates. Final figures for sugar production in Brazil look likely to be around 34 million tonnes which is a tad lower than last year’s 34.1 million tonnes.
Sugar cane yields in the State of Sao Paulo increased to 85.7 tonnes per hectare in the period between April and July which is an increase of 15% compared with last year.
Sucrose content increased by 10% when compared to average July figures. Sucrose content was 133kg per tonne which is an increase of over 4% from June and over 3.5% compared with last year.
Brazil’s forecast for the 2012/13 cane crush is unchanged at 512 million tonnes of cane and 31 million tonnes of sugar according to Datagro. These figures are for center south production of between 545 and 575 million tonnes of sugar cane. The price and demand for gasoline will determine sugar output in the coming season with U.S. demand for ethanol a possible reason for increased ethanol output in Brazil as opposed to sugar. The U.S. is likely to import 2.5 billion litres of Brazilian ethanol up from 1.5 litres.
Dry weather resulted in Brazil’s 2012/13 sugar forecast being reduced by 1.5 million tonnes in September due to dry weather and lower yields. Gasoline prices and U.S. demand for ethanol are variables likely to be monitored for further changes to forecasts. Also being monitored is a possible decision by Brazil to increase the ethanol content in gasoline from 20% to 25%. This would increase ethanol production at the expense of sugar production.
The increased demand for Brazilian ethanol described above would account for approximately 35 million tonnes of sugar cane. Hence an equivalent reduction in sugar production may be anticipated.
More than 500,000 tonnes of ICE October raw sugar has gone to delivery with Bunge thought to have taken most of the 11,000 plus lots. The market will wait to see what Bunge intends to do with such a large delivery of sugar and what the destination will be once vessels are nominated. The move could add further bearish pressure. October raw sugar closed at an 84 cent discount to March raws indicative of the surplus sugar on the market.
A consensus of analysts see sugar prices falling during 2012 with the world sugar surplus seen at just under 8 million tonnes in 2011/12 and falling to just over 3 million tonnes in 2012/13. This is somewhat dependent on whether output will fully recover in the world largest producer Brazil, the amount of cane diverted to produce ethanol and exports from India. Nevertheless, the surplus for 2011/12 creates a likely bearish market during 2012.
A fall in sugar prices may result in Brazilian millers diverting sugar to ethanol production. Large harvests in Europe, India and Thailand have resulted in a higher world surplus.
It is believed that Brazil’s production will not recover significantly as the lower production figures are not due to weather or the amount of cane diverted to ethanol production but mainly due to older rations and lower yields. Therefore, investment is required for an increase in yields and higher Brazilian production.
Raw sugar prices are forecast at around 22 cents during the second quarter during the Brazilian centre south harvest and at around 24 cents at the end of 2012. White sugar is forecast at around $600 during the second quarter and around the same at the end of 2012. Weather patterns could alter this forecast price projection.
The weather phenomena La Nina and El Nino are factors potentially impacting sugar supply. La Nina tends to result in drier weather in the centre south of Brazil thereby delaying crops, harvesting and crushing. El Nino which follows La Nina after the second quarter gives wetter conditions potentially impacting sucrose content. La Nina also results in heavy rains, flooding in the Asia-Pacific region and occasional drought in Africa and South America.
White sugar is currently trading around $626.50 and raw sugar at 24.62 cents.
A major factor determining sugar prices during 2012 will be the price of ethanol and as a consequence the decisions by Brazilian mills to divert cane to ethanol production. The ethanol parity is currently around the 20 cents a pound for raw sugar. Below this raw sugar price mills would be expected to convert cane to ethanol and not to sugar.
Brazil may announce that it is lowering the percentage of ethanol required to be mixed in gasoline. The primary source of ethanol in Brazil is from sugar cane and if the requirement for 25% ethanol is eased to 18% this would free up sugar supplies that would have otherwise been diverted to ethanol production.
Sugar futures declined on the news. The news follows a reported drop in cane production in Brazil’s center south due to older ratoons and lower yields.
UNICA is expected to announce that sugar production in the Center South region of Brazil is expected to be lower than production during the 2010/11 season which amounted to 33.5 million tonnes. Production is therefore short of the 35 million tonnes estimated by the market for the 2011/12 season.
The news sent sugar prices soaring to achieve the highest daily gains of 2011 as Brazil approaches peak harvest season. Older cane ratoons, dry weather in the second half of 2010 and higher sugar prices encouraging delays in replanting and use of older ratoons resulted in lower sugar yields. The Center South produces most of Brazil’s sugar.