Mills in Brazil's center-south region are expected to allocate more cane to sugar production in the new season that starts in April than they did in the previous crop, due to improved raw sugar prices in New York, INTL FCStone said on Thursday.
The broker and consultancy firm said in a projection for the new crop that mills would likely earmark 37.8% of cane to sugar production in 2020-21 from an all-time low of 34.1% allocated in the previous crop. With that, center-south sugar production should grow 10.7% in 2020-21 to 29.4 million tonnes.
Mills in Brazil have heavily favored ethanol production for the last two seasons, using most of the cane available to make the biofuel, which was giving them higher financial returns than sugar. The recent spike in sugar prices, however, could change things.
Matheus Costa, Brazil-based FCStone sugar and ethanol analyst says the change could have been larger if more mills were able to hedge sugar sales in New York, which is not the case currently.
Many financially troubled sugar makers in Brazil do not have access to financing lines to carry sold positions in New York in longer-maturing contracts, so they prefer to make ethanol instead of sugar and sell the product locally - a very liquid market that pays in cash in around three days time. The expected production mix change will result in a smaller ethanol production next season, FCStone said. Brazil's 2020-21 center-south ethanol output is seen at 32.4 billion liters versus 33.3 billion liters in 2019-20.
That reduction could be larger if not for the growing corn-based ethanol production. The broker sees corn ethanol volumes increasing 54% in the new season to 2.5 billion liters. Weather conditions are turning positive in most center-south areas, the consultancy said, after ample rains early in 2020 that are replenishing soil moisture. It said crops were healthier by the third week of January than at this time last year and the 10-year average for the period.
As a result, the analyst expects a larger cane crop in 2020-21 at 595 million tonnes, versus 589.8 million tonnes in 2019-20 in the center-south.