IT’S ALL ABOUT BRAZIL
The sugar market has, essentially, remained rangebound since early September with just a short sojourn down below 19 cents when a bout of tired fund liquidation hit the market. Apart from that prices have remained comfortably above the long term average of the past ten years but caught in a 150 point range.
The dramatic drop in Brazilian production due to drought and frosts has been the main reason for prices remaining near five year highs. However, Indian stocks that have plugged supply gaps formed by the lack of Brazilian sugar have stopped prices rallying over 21 cents a level not seen since 2016. A lack of physical off-take has also had an impact as rocketing freight- rates exacerbated by a chronic lack of containers has had end-users turning to use destination stocks instead of buying from origin.
However, now the end of 2021 looms and the 2021/22 Brazilian CS harvest limps to a rather underwhelming finish, attention starts to look at the outlook for 2022 and, more importantly, the prospects for the next Brazilian CS cane crop and how much sugar might be produced. It could be pivotal as to where sugar prices are this time next year. Another poor harvest could see global prices reach levels not seen in over 10 years.
As things stand, no one is expecting any miraculous recovery from the current Brazilian harvest which looks likely to see the total cane crush for the CS barely make 520 million tonnes and just about scrape above 32 million tonnes of sugar, down over 6 million tonnes from
the record production of the previous season. A combination of 16 months of drought topped with a couple of nights of sharp frosts hit the cane hard and will take more than one season to recover. Despite a recent breaking of the drought with rain returning since late September the old adage that ‘rain makes cane’ might not hold true this time. Currently, most analysts are seeing production only improving marginally to 34-35 million tonnes at best.
There is also a nagging concern over the resurgence of the La Nina weather phenomenon for the second year running. Developing in the Pacific Ocean it can cause wetter and colder weather across Southern Asia and Australia and drier weather across parts of the US and, more importantly, across Brazil’s CS region. While this year’s pattern is expected, it is not exceptionally strong and possibly rather more short-lived than normal, nevertheless, it is weighing on trader’s minds with several analysts suggesting it could have a significant impact on Brazil’s cane output.
THE BRAZILIAN GOVERNMENT’S AGENCY, CONAB, SEE CORN ETHANOL INCREASING THIS SEASON BY 15% COMPARED WITH LAST SEASON. WITH MORE PLANTS COMING ON LINE OVER THE NEXT FEW YEARS ETHANOL FROM CORN IS EXPECTED TO CONTINUE TO GROW OVER THE NEXT FEW YEARS.
Apart from weather there are several other factors that are likely to come into play. The biggest is ethanol and how much cane is used to produce it instead of sugar. Production collapsed at the beginning of the pandemic as crude prices and demand crashed, resulting in record sugar production in 2020/21. During the current season total ethanol production remains around 9% lower year on year, although this is mainly because of lower cane output and the sugar/ethanol split is only marginally more at around 45/55 split. However, with crude prices surging to near three
6 | ADMISI - The Ghost In The Machine | Q4 Edition 2021
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