THE BEARS HAVE TO THANK PRESIDENT BOLSONARO FOR HIS DOGGED DETERMINATION TO KEEP BRAZILIAN FUEL PRICES AS LOW AS POSSIBLE BY CONTINUING TO REPLACE THE STATE ENERGY COMPANY’S CEO UNTIL HE FOUND ONE COMPLIANT ENOUGH FOR HIS NEEDS.
Back in March the surge in crude prices had analyst predicting a significant shift in the amount of Brazilian sugarcane being used to produce ethanol at the expense of sugar for, the soon to start, 2022/23 harvest. A severe draught had hit the previous harvest hard with the lowest cane crush in a decade. The cane has recovered to an extent with the return of rains but to exceed last season’s 32 million tonnes of sugar the sugar/ethanol split will need to be at least 45/55. Initially, this seemed unlikely when crude rocketed above $130 per barrel. There was chatter of mills washing out physical contract so as to be able to concentrate on ethanol. A dire warning of sub 30 million tonnes production had analysts predicting a global deficit for the season.
Fast forward four months and the Brazilian harvest is well underway. The split has, slowly improved in favour of sugar, although production still lags last season year on year. The bears have to thank President Bolsonaro for his dogged determination to keep Brazilian fuel prices as low as possible by continuing to replace the state energy company’s CEO until he found one compliant enough for his needs, not to mention cutting fuel taxes all of which has lowered ethanol parity to a level that makes sugar production eminently more attractive. While few analysts are predicting any significant increase in production the fear of 29 million tonnes that Louis Dreyfus had predicted is receding. Elsewhere there seems limited areas of concern. The Indian monsoon is adequate so far after a rather stuttering start. ISMA recently predicted production will reach 35.5 million tonnes next season. Given they underestimated production by over 15% last season it could be argued production will easily top 36 million tonnes.
Traders now await the Indian Government’s export policy for 2022/23 which many expect to be capped, initially at least, at around 7 million tonnes. Thailand production looks set to jump again with 12-13 million tonnes a possibility as the weather has been kind and farmers are happy with prices. EU (and UK) production is likely to drop due to lower planted area and dry weather. The latter is only conjecture after record temperatures were hit in mid-July. By now the beet’s tap root is probably sufficient to find water. Consumption is expected to increase by around 1-1.5% but the prospect of a global recession is clouding the crystal ball.
Most analysts are now pencilling in a global surplus of 2-3 million tonnes for 2022/23. Uncertainty over Brazilian production has, undoubtably, kept prices higher than to be expected with a surplus looming. This premium has recently started to erode as production prospects improve for Brazil and hence the drop below 18 cents.
The world remains a very uncertain place with hugely varying views on the future. The war in Ukraine is likely to rumble on but the world seems to be adapting. The prospects of a global recession adds another layer of uncertainty. Sugar prices look to have peaked in April/May when 20 cents was breached. Now it is the downside under pressure. Prices have not been below 17.50 in a year but with a looming surplus for 2022/23 that may not be the case for much longer.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
5 | ADMISI - The Ghost In The Machine | Q2 Edition 2022
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24
