The year 2023 ended with average premiums for crystal sugar with up to Icumsa 150 against the average prices for anhydrous and hydrated ethanol (both converted into reals per 50-kg bag equivalent to crystal sugar with up to Icumsa 150, based in Ribeirão Preto) of +66.01%. This general average for 2023 was 37.66% higher than that seen in 2022, which hit +28.35%. It is interesting to note that besides the general average of the year, only in December 2023 the premiums for crystal sugar over hydrated ethanol hit +110.48%, well above SAFRAS & Mercado’s expectations for the period, which were +100.89%.
Before these intense gains in December above 100%, the months of September, October and November showed very strong highs (respectively +82.07%, +94.11%, and +95.98%), indicating that the last four months of 2023 had much more intense premiums than the general average of 2023, at +66.01%, which proved to be weak even when we look at the pattern at the end of the second half of the year. It is clear that the months of February, March and April were periods with premiums between +37% and +38%, which ended up having a negative impact on the annual average. SAFRAS & Mercado warns that the strengthening of premiums for crystal sugar over the average prices for anhydrous and hydrated ethanol occurred in the last four months of 2023 due to the decline in ethanol prices.
Sugar even declined in the physical market in the same period, but at a marginal intensity when compared to the evolution of anhydrous and hydrated ethanol prices in reals per liter in the physical market. Ethanol had its negative pressure accelerated by mills due to their need to dispose of high production volumes, with the current 2023/24 crop at record and historic levels. The production boom brought down production costs per liter, which made it possible to reduce prices at mills so that competitiveness was increased so that high levels of production and stocks could be disposed of.
At the other end, crystal sugar also suffered losses, also due to the crop progress in terms of high raw material terms, which made it possible to boost supply. However, this has occurred slowly when compared to ethanol. Furthermore, the mills that produce crystal sugar ended up increasing their stocks significantly during the season, reducing the availability of physical supply. As crystal sugar has a greater storage capacity than ethanol (in terms of storage time), mills were able to have a much greater sugar supply management capacity than that observed with ethanol, which resulted in milder lows for the sugar than for both anhydrous and hydrated ethanol.
The month of December was an isolated example of this issue, which also reflected the behavior of the entire 2023. Looking at the evolution in the margin, compared to the immediately previous fortnight, we see that while crystal sugar fell 2.46% from November (which is not negligible), anhydrous ethanol ended up falling by 7.06%, and hydrated ethanol by another 11.15%, resulting in an average decline between both of 9.11%. It was because of this that crystal sugar premiums grew from +95.98% to 110.48% from November to December, even in a scenario of a decline in crystal sugar prices of 2.46%. For January 2024, SAFRAS & Mercado estimates a 3.80% decline in anhydrous ethanol prices and an 0.90% high in hydrated ethanol prices, which should result in an average decline of 1.45%. In turn, crystal sugar in the physical market is expected to fall by 1.69%. As a result, crystal sugar premiums should fall from the current +110.48% to +109.90%.