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THERE ARE EXPECTATIONS THAT INDIA WOULD IMPROVE PRODUCTION IN 2020 AND WE COULD SEE 32 MLN M/T AGAIN.


Millers in Brazil are expected to switch more cane juice to sugar in 2020/21 than last year as prices for sugar have improved and it is likely, but not guaranteed, that it may be better than ethanol, depending on the REAL, gasoline prices and of course international sugar prices.


At the present moment Centre-South Millers are expected to divert as much as 40% of cane juice to sugar vs 34% in 2019 and Sugar production could reach as much as 33 mln m/t vs 26,5 mln m/t in 2019. Of course the REAL and prices (sugar and ethanol) will be volatile in 2020 so the risk for a lower than expected sugar production exist. Anyway, 33 mln m/t would add 6,5 mln m/t and we had a deficit close to 12 mln m/t in 2019/20 so where will the rest come from?


There are expectations that India would improve production in 2020 and we could see 32 mln m/t again. That would add 5,5 mln m/t and Thailand would have a better crop also. So, assuming good weather, we have potential for a more balanced supply and demand in 2020/21 but all going well and also prices encouraging the recovery.


What perhaps many estimates are not paying too much attention is the Ethanol supply and demand in Brazil. The carry-over from this crop year will not be much, perhaps under 2,5 bil litters about 1 month of domestic needs. The Brazilian fleet has increased by at least 650k vehicles taking into consideration scrapping. The total fleet is close to 39 mln vehicles and 81% are Flex Fuel. Any drop on Ethanol supply will affect prices and generate gasoline demand. Brazil is not yet producing enough gasoline having to import close to 2 bln litters in 2019 on a nett basis (gasoline imports greater than exports) so greater demand will mean greater imports.


We believe it will not be easier for Brazil to have more sugar without affecting the ethanol market and having higher prices. Higher ethanol prices than 2019 would mean a higher “entry” for sugar but of course the REAL will play its part and so far, the REAL is weak, very weak.


So, after a very large deficit in 2019/20, the largest in more than 15 years (at least) to have a balance supply and demand in 2020/21 we will require good weather and good prices. Brazilian millers sell sugar in US$ and ethanol in Reais. Therefore, the currency will be hugely important during the coming months in determining what is a good price for sugar. The weather will also be key in allowing farmers elsewhere to increase production.”


The year has been extraordinary volatile and so far, (9th of March) we have been in a “melt down” mood with Crude and Stock Markets plummeting as they have to deal with the uncertainties of the Coronavirus in terms of treatment, contagion and economic consequences. Very likely Investors liquidated all their nett longs in sugar, so what’s next?


Sugar, like all Commodities, is linked to the macroeconomic world, so more than ever before, in order to have a more balanced supply and demand many factors will need to be properly aligned and unless Sugar prices are interesting vs ethanol, for Brazilian Millers, we may not get the Sugar production expected.


Alberto Peixoto E: albertopeixoto@apcommodities.london T: +44(0) 7570 714 981


21 | ADMISI - The Ghost In The Machine | Q1 Edition


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