Porto Alegre, October 11th, 2024 – The most recent biweekly report from Unica, updated on the morning of October 11, showed a deepening decline in cane crushing and sugar production in the short term, in line with what SAFRAS & Mercado had already been warning about in its consulting services. Nevertheless, our expectations regarding anhydrous and hydrated ethanol sales ended up not being confirmed, with the effective volumes for September coming in moderately above expectations.
Before analyzing the final numbers, it is important to observe what Unica said in its report. In this sense, we draw attention to the beginning of the early end of the current 2024/25 crop. According to the entity, two mills finished crushing in the second half of September, a relatively record time for the region, three months before December. In addition, in the season thus far four mills have already finished their activities.
SAFRAS & Mercado has warned since July about the early end of the crushing of the current 2024/25 crop due to the drought that occurred between the beginning of the second half of April and the beginning of the first half of October, as from the second week onward the rains began in the Center-South and tend to become increasingly frequent from now on. Still in the text part of the report, the entity pointed to a slight reduction in the accumulated cane yield for sugar production, which, in the view of SAFRAS & Mercado, has been pressured in the short term due to the effects of fires, as the cane affected by fires would go almost directly to ethanol production.
Apart from these two factors, there is little to highlight in the textual part of the Unica report. Regarding hydrated ethanol, sales of 1.73 bln liters in September fell by 3% compared to the previous month, which had a demand of 1.78 bln liters. Even so, for the year, there is a 5% increase still largely based on a statistical carryover, which does not justify any optimistic outlook for demand from now on. Especially because the crop, approaching its end, brings higher prices, so that demand is repressed until the beginning of the next season, which, in fact, has already been observed in the physical market prices.
Relative to SAFRAS & Mercado’s expectation for September, of 1.62 bln liters, the effective data for the month were 6.78% higher, which is indeed positive for the sector. Regarding anhydrous ethanol, the scenario is even more positive, since the demand for 1.02 bln liters showed a 10% increase YoY and a very slight decline of 0.99% from the previous month, August. Compared to SAFRAS & Mercado’s expectation for the period of 951 mln liters, the current data for September were 7.89% higher.
According to SAFRAS & Mercado, the demand for hydrated ethanol from distributors to mills should settle down in the new range of 1.70 to 1.75 bln liters from September until the end of March, with the proximity of the off-season and the end of the current crop. The effects of the drought are expected to further limit supply, which will cause mills to raise prices to reduce competitiveness and prevent demand from being so high, since it is politically necessary for stocks to gradually evolve toward their end at the end of the season without major pressure or shocks, especially given the recent approval of the future fuel bill, which determines the increase in anhydrous demand for next season.
In the vision of SAFRAS & Mercado, although the supply curve for cane crushing and the production of its derivatives is still very close to the peak of the crop, the trend from September onward will be ever sharper declines, besides the increase in the number of mills that will end their harvest of the current season earlier than usual. This will further reinforce the negative pressure on the cane harvest and the supply of these derivatives.