We have seen many countries implementing partial or total lockdowns that went on for weeks. During this period, we saw demand destruction as “consumers” were not allowed to leave their homes and many lost their jobs without any government assistance. Demand destruction was across the board and fuel was one of the most affected ones.
SUGAR, THE VIRUS & THE FUTURE
Sugar producers across the world, like many other sectors were not prepared for Covid-19. Many governments had to step in to control what was seen as a deadly virus which would bring long term impact, one way or another.
As global economies were affected, currencies were displaced from their “traditional” bands and some took a great fall like the Brazilian Real. Brazil is having to deal with the virus and the internal politics. The dispute for power in Brazil is magnified via the media which is also divided and dividing politics/population in how to deal with the virus. Anyway, at time of writing the Real is at R$ 5,33 down 25% so far this year (but has been worse i.e. R$ 6,00 in mid-May).
All these are the harsh facts that caused demand to drop and confidence to be shaken.
We just ended the April/March 2019/20 period in a deficit, estimated at 11,7 mln m/t R.V.
We are still in the Oct/Sept 19/20 period (different companies look at different periods) and the S&D is reflecting some new crops like Brazil CS. For the Oct/ Sept 19/20 period we estimate a small surplus of
less than 2 mln m/t R.V. We are also taking into consideration some sugar demand destruction during April/June 2020.
The long term for Sugar is the fact Ethanol demand and prices in Brazil plummet and millers which were likely switching 40% of their cane juice to sugar will likely do more. Current estimates range from 45% to 50% and in terms of industrial capacity is feasible. Current crop estimates range from 35,6 to 41 mln m/t.
Ethanol prices in Brazil are trading at a discount to Sugar. It has been worse (high 7’s) but remains weak at high 8’s so with Sugar trading around UScts/ lb 10/12, millers will still look to maximize sugar production, to the point sales are not easy and cash flow starts being an issue. So, Brazil CS crop produced 26,7 mln m/t last year and we are wondering if the world needs Brazil producing 8,9 to 14,3 mln m/t more? We don’t think so! Maybe half would be fine.
36 | ADMISI - The Ghost In The Machine | Q2 Edition
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