Brazil's center-south, the world's largest sugar-producing region, is expected to reduce output of the sweetener by 10 percent in the 2018/19 cane crop that kicks off in April, due to low global sugar prices and stagnant cane production. A Reuters poll that collected projections from seven independent consultancies and brokers found that the center-south is forecast to produce 31.69 million tonnes of sugar in the 2018/19 cycle compared with 35.2 million tonnes in the previous season.
Analysts see mills in Brazil allocating a near record volume of cane to ethanol production instead, as prices and demand for the biofuel continue to be strong in Brazil due to a large price advantage over gasoline at the pump. Global sugar prices continue to be pressured by the expectation of a large global surplus of the commodity, as regions such as India, Thailand and the European Union boost production. Raw sugar benchmark in New York lost almost 15 percent this year, trading near its lowest level in five years.
Ethanol production is expected to average at 27 billion liters, 9.3 percent more than in the previous season and above the consensus in the last survey of 26.15 billion liters. "Strong ethanol consumption during the between-harvests period is an indication that we will likely have another year of strong demand for the biofuel, which should lead to a production mix towards ethanol. That, of course, is if oil prices remain in the current level or above," said Joco Paulo Botelho, an analyst at INTL FCStone in Brazil.
According to cane industry group Unica, sales of hydrous ethanol, the type that competes with gasoline at pumps, jumped 37 percent in February compared with the same month last year. While consultancies expect a wide swing on sugar and ethanol production, cane crushing is seen virtually stable compared to the previous season, a result of low investment on field renovation due to the poor financial conditions for most mills.
"Without planting expansion and with cane crop renovation below necessary, the average age of plants has increased, hurting agricultural yields," said Paulo Roberto Costa, chief executive of Copersucar, the world's largest sugar merchant. Brazil's center-south is expected to crush 588,640 million tonnes of cane in 2018/19, compared to 585 million in the previous crop.