cane to make sugar. To a certain extent the mills have no option. They have a huge cane crop to crush. They have operational and labour costs coupled with having to keep their cash-flow positive. Luckily, at the moment, due to lower sugar production elsewhere their sugar is in demand. Over 2 million tonnes of Brazilian sugar were delivered against the May 2020 contract and the vessels waiting to load sugar outside Brazilian ports grows daily. Despite this demand world sugar prices have dropped as analysts estimate that Brazil will produce a record amount of sugar in the 2020/21 season. Currently, guesses range from the pessimistic but pragmatic of around 35-36 million tonnes to the fanciful 39-40 million tonnes. Whatever the outcome it points to a large or very large global surplus especially as Indian production is expected to jump back to over 30
million tonnes.
Of course, the amount of sugar Brazil produces will depend on several important factors and it is by no means a certainty that they will produce a record amount. Undoubtedly, their crush season for 2020/21 has got off to a thumping start. Since the beginning of April (the official start to the season) they have produced nearly 85% more sugar than during the same period last season. Mills are using nearly 48% of their cane for sugar. It would seem likely that they will produce over 5 million tonnes just in May and by the end of June production could be over double compared with June 2019. However, to achieve this level of production all the way through to the end of the year would need ideal crushing weather with minimal delays caused by rain. If this was to be the case then concerns over dry weather would soon be rife. Secondly, if crude prices continue to improve as the world comes out of lock-down then eventually ethanol prices may follow. If this is coupled with an improvement in the Brazilian real it is not inconceivable that ethanol parity may improve to a level that might mean ethanol production becomes viable again.
There are many if’s and but’s and the biggest uncertainty is the Coronavirus which has caused so much havoc and grief across the globe. There would appear to be some light at the end of the tunnel as infection rate drop in many countries and lock-down is slowly lifted. However, Latin America is still being ravaged by the virus
SINCE THE BEGINNING OF APRIL (THE OFFICIAL START TO THE SEASON) THEY HAVE PRODUCED NEARLY 85% MORE SUGAR THAN DURING THE SAME PERIOD LAST SEASON. MILLS ARE USING NEARLY 48% OF THEIR CANE FOR SUGAR.
and there is still a possibility that countries could see a second spike of infections which could mean restrictions being put back in place. It would seem a vaccine may be many months away but treatments are likely to improve as more is learnt about Covid-19.
Sugar prices took a dive along with virtually all other markets as uncertainty haunted the world. Recently, fundamental considerations have become very much more instrumental in determining price direction and this will continue to be the case. There is growing confidence that the lows posted in late April may be the long-term price bottom. The market’s ability to improve further remains very uncertain and will depend on the factors outlined above. There may be short term supply tightness as Brazil struggles to export the vast quantities of raw sugar produced but whether this impacts on prices remains to be seen. The market desperately wants prices to improve but, currently, this would seem unlikely. The large long-term investment funds continue to remain side lined. Until they become more active the market looks set to remain range-bound with, possibly, a slight up-side trend.
Whatever happens market-wise it is likely I will remain cocooned in my study. I will continue to miss the office camaraderie but, at least, I can continue to listen to music I am not allowed to play elsewhere in the house.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
13 | ADMISI - The Ghost In The Machine | Q2 Edition
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