Porto Alegre, October 28th, 2024 – The data on the most recent Unica report on the biweekly crushing of the first half of October showed sharp declines in the short term, when we compare the data from the first half of October with the immediately preceding fortnight, while in the annual comparison (first half of October compared to the same period last year) there were significant advances for the standards of this stage of the crop. Based on this, SAFRAS & Mercado warns that there is a clear possibility of two types of market reading. The first, from a more optimistic perspective toward prices, which highlights the sharp decline in the margin; and the second, from a negative perspective toward prices, which highlights the moderate increase compared to the previous year.
In the first half of October, 33.53 mln tons of cane were processed (+2.45% YTD, -3% YoY, -12% in the margin, and +11% on the 5-year average) and 2.44 mln tons of sugar were manufactured (+2.08% YTD, +8% YoY, -13% in the margin, and +18% over the 5-year average). This change of a sharp decline in the short term, together with important gains over the year and the 5-year average, tends to lead to divergent readings in the market. For now, SAFRAS & Mercado draws attention to the seasonality of the period compared to the evolution of rainfall seen since the beginning of the second half of October.
On the one hand, we can see that the recent data from Unica for the first half of October still encompass a scenario of drought that has existed since the beginning of the second half of April. Although the rain began in the second half of October, it was weak, with cane fields under the influence of the drought that had been seen until then. That is why, in SAFRAS & Mercado’s vision, short-term comparisons (in the margin, with the current fortnight versus the previous one) show a 13% decline in sugar production, a 12% decline in cane crushing, and declines of 9% and 10% in anhydrous and hydrated ethanol production. However, we expect that soon the next report with data on the second half of October will show much less intense levels of deceleration in the margin back to one digit.
As a consequence, the annual and 5-year averages will also be greater than the current advantage. This will happen because the October rain has been highly beneficial to cane fields, causing them to regain strength, even in their color. This is exactly why several mills that were planning to close in advance their operations for the current 2024/25 crop are already considering the maintenance of operations, given the improvement in cane field conditions compared to the rainfall that has been observed and that will continue to be present in cane fields in the Center-South until the end of the rainy season, in March next year.
SAFRAS & Mercado has already published on its platform its monthly report on rainfall expectations for cane fields in the Center-South for November, December and January next year, with indications of high rainfall levels. Despite this, the Unica report showed that in the first half of October, seven mills finished the current crop earlier, against only one mill at the same time last season. In the 2024/25 crop, 11 mills have already closed their activities by the first half of October, compared to four seen at the same time in the previous crop, which indicates a high degree of crushing in advance, still under the influence of the drought that had been observed until then. However, as already mentioned, the earlier-than-normal start of rain should slow down this trend from the second half of October.
Regarding sales of anhydrous and hydrated ethanol from mills to distributors, SAFRAS & Mercado notes demand is strengthening in October. This is because sales of 532 mln liters of anhydrous ethanol in the first half of October, when projected for the second half of the month, should result in a total volume of 1.06 bln liters, up 3.76% from the sales of 1.02 bln liters in September. Likewise, for hydrated ethanol, the demand of 902 mln liters in the first half of the month could generate a final demand of 1.80 bln liters by the end of October, causing an increase of 4.2% over the sales of 1.73 bln liters in September.