Porto Alegre, June 13th, 2022 – The hydrated ethanol premiums in the brazilian physical market dropped from nearly 21% to almost 7% between April and May
The 9% decline in hydrated ethanol prices in the physical market was amplified by the almost 5% devaluation in the real, causing hydrated ethanol to fall much more than the 2% decline of sugar in New York. The month of May was still a positive period for hydrated ethanol in its price ratio with sugar, where the level of premiums was maintained. Nevertheless, these premiums ended up suffering a strong shake from April to May, when the advantage of hydrated ethanol in cents a pound against New York sugar plummeted by 13.98%, changing from 21.94% to 7.97%. A large part of this movement was due to the overlapping of two important negative vectors in the formation of hydrated ethanol prices: the fall in the physical market and the devaluation of the real against the dollar. The downward pressure of these two vectors was such that it more than offset the decline observed in New York sugar in the same period.
In summary, we had a scenario in which the price of hydrated ethanol in reals per liter in the Brazilian physical market, based on data in Ribeirão Preto, dropped 9.00% from April to May. In the meantime, the real against the dollar fell by 4.81%. As a result, in cents per pound, the average price of hydrated ethanol ended up falling by 13.54%. In the meantime, in New York, raw sugar, based on the current spot contract, July/22, fell by “only” 2.08%, which, discounting the currency devaluation, slightly increased to 2.25%. This explains why hydrated ethanol premiums against New York sugar plummeted so much in the short term.
This May premium level at 7.97% was 8.25% above the premium level observed in the same month of the previous year, although in the margin it dropped by 13.98% from the 5-year average for the same period. Despite this, it has an advantage of 2.47%, with an average premium of 5.50% generally observed in May. In April, SAFRAS & Mercado estimated an average hydrated ethanol premium for May at 9.73%, which ended up 1.76% above the effective data of 7.97% for the period.
For June, SAFRAS & Mercado projects an average premium for hydrated ethanol at 4.43%, based on a dollar at BRL 4.80, an average sugar price in New York at 19.80 cents, and an average price of BRL 3.85 per liter for hydrated ethanol in the physical market (based on Ribeirão Preto). The details of what must happen with hydrated ethanol in the physical market and sugar in New York that justify this expectation by SAFRAS & Mercado are already covered in specific reports on these commodities made available by its consulting service.
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