The arrival of the off-season raised averages in December and reduced the difference from the final average of the previous year. Next season must see an increase in cane volume, growth in sugar production, and a decline in physical market prices.
In December, the physical sugar market had significant gains in the short term but strong declines in the medium term, along with a still positive position compared to the historical five-year average for the same period. While in the margin, in comparison to the previous month, gains hit 7%, over the year the fall remained at 22%, while the deflated five-year average for the same period increased by 10%. On average in December, the trading prices of crystal sugar with up to Icumsa 150 in Ribeirão Preto hovered around BRL 138.80 per 50-kg bag, although in the last two weeks of the month the prices surpassed that level, firstly at BRL 140.00 and then at BRL 141.00 a bag.
The great detail is that this off-season appreciation movement must be very brief and moderate because the hydrated ethanol demand remains slow in the Center-South in a context of increased federal and state taxes on biofuel. This suggests that the 2023/24 crop must have a much less concentrated share of ethanol than usual. In addition, the season will have a new recovery in the volume of supply for both cane and sugar. The former must go from 545 to 565 mln tons in the Center-South, and sugar from 33 to 36 mln tons in the same region. Therefore, besides a share less focused on ethanol, there will be a much broader supply base for cane.
A third worrisome vector for consumption is related to GDP, which in 2023, according to Central Bank estimates, must grow by only 1%, against an average growth of 2.2% expected for 2022. In other words, GDP in 2023 must grow only half of what was seen in 2022, and this only in the first estimate made in 2022. This will still have to be calibrated over the coming quarters through the Central Bank reports. Long before that, the international market must come from a phase of ample sugar supply from India, which will neutralize a very high buying strength during the first quarter of 2023, further reinforcing the trend of lack of strength for rising prices in the market during the cane off-season.
In November, SAFRAS & Mercado expected average prices of around BRL 131.00 for crystal sugar with up to Icumsa 150. However, the effective average for the period of BRL 138.80 closed 5.95% above the effective data for the period. For January, SAFRAS & Mercado projects an average of BRL 140.00 per 50-kg bag, down 12% YoY, with gains of only 0.8% from the previous month, and an increase of 30% over the five-year average for the same period.