Porto Alegre, February 13th, 2023 – Basis in Santos is already starting to show differentials for sugar shipments in the coming months with exports for April having discounts of 0.35 cents against New York
Early February has been a period of greater assimilation of the new 2023/24 crop, which has recovered in terms of cane volume and sugar production. Although this is not new information (since in early December last year, SAFRAS & Mercado was one of the first consultancies to indicate an increase in the supply of cane by 20 mln tons in the future season) it is only now in February that export benchmarks have shifted from premiums to differentials, albeit restricted to buy orders from international importers. The most recent data for the end of the first week of February for VHP in Santos, with immediate shipment still in February, show a scenario of bids and offers between -0.05 and +0.15 cents a pound for the current driver contract, May/23, in New York. A week before, bids and offers were ranging from +0.10 to +0.15 cents.
This shows an important reversal in the buying attitude of international importers toward VHP in Santos. Firstly, the change in the bids by importers from premiums to differentials (albeit slightly below stability) already seeks to price a scenario of a sharp increase in the supply of cane and sugar in the future 2023/24 crop, which should rise from 545 to 565 mln tons for cane and from 33 to 36 mln tons for sugar in the Center-South of Brazil alone. The situation of negative bids for immediate shipment also reflects the scenario of high international supply from Asia. If the indications of a crop failure from 36 to 34 mln tons of sugar in India were effectively valid for the market, the bids for February and even March and April would be expanding their premiums rather than decreasing them.
SAFRAS & Mercado warned of this issue of lack of credibility of a possible crop failure in India since the beginning of the second half of February, when the first speculations on the subject began to appear, even on the part of representatives of food-processing industries from India. In a second moment, this narrative ended up being also assumed by representatives of the country’s mills, but with the sole objective of taking advantage of higher prices in New York to boost their foreign shipments above the quota set by the Indian government. Last year’s export volumes surpassed by 1.2 mln tons the ceiling set by the government at 10 mln tons. It soon becomes clear that if not even a ceiling stipulated by legal measures is respected in the country, what can be said about the practically informal targets for exports limited to 6 mln tons for the current crop?
It is interesting to contrast the current negative bids with what was seen at the same time last month when, in early January, the basis showed bids and offers between +0.40 and +0.60 cents over the March/23 contract in New York. Last year, at the beginning of February, what we saw were bids and offers between -0.06 and 0.03 cents against the New York driver contract, in a market pattern very similar to what we see today, except for the until then lack of prospects for an increase in the cane crop in the Center-South, which at the time raised about its real capacity to recover from the crop failure in the previous season. However, the market was already aware of higher exports from India, despite not assimilating a volume above 11 mln tons. Bringing these vectors to the present market scenario, we see that now we have larger production from India (without crop failure) along with an increase in the production of Brazil’s Center-South, which may indicate the projection of even more intense differentials against the VHP shipments in Santos for the coming months.
An indication of this is the basis for shipment in April, which has shown bids and offers between -0.35 and -0.15 cents a pound, with much deeper differentials than the basis indications for shipment in February.
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