Porto Alegre, May 10, 2021 – With the production losses of the 2021/22 crop in the Center-South, the dispute for cane becomes even fiercer in the medium to long term with the priority of mills even more accentuated for VHP sugar production due to the fulfillment of external supply contracts. The most recent data on monthly average prices for crystal sugar with up to Icumsa 150 in the Brazilian physical market, considering the average of the interior of São Paulo and relative to the month of April, show a scenario of scarcity even more intense than expected by the market earlier. Besides low stocks at the end of the season, agents also face the issue of a decline in the cane supply for the 2021/22 season, which, according to SAFRAS & Mercado estimates, must fall from the volume of 605 to 685 million tons. This new vector brought even more pressure to reduce the availability of cane for the production of crystal with up to Icumsa 150.
This is because, either with production losses or not, mills must meet the supply contracts signed for the current season since June last year. Still in January this year, the 2021/22 crop was practically sold out, while at the end of February nearly 50% of the supply for the subsequent season, 2022/23, were already contracted too. In this sense, given the high tone of exposure of VHP to the foreign market, the pressure for cane dispute has become greater, since crystal sugar also disputes with hydrated ethanol a significant portion of the supply availability of total reducing sugar (TRS) for the maintenance of internal supply. Therefore, the scenario that was already complex even before the end of the off-season has been even more challenging, which to some extent benefits the rise in prices. SAFRAS & Mercado expects that crystal sugar must look for levels between BRL 115 and 120 for the next few months.
At the end of March in Brazil’s Center-South, crystal sugar stocks with up to Icumsa 180 were at 2.12 million tons. This volume is 17.68% above the same time last year (1.80 million tons) but 25.43% below the month earlier (3.84 million tons). Against the 5-year average of 1.63 million tons for the same period, recent volumes are 29.70% higher. In the Northeast, the stored volumes of crystal sugar reach 243.12 thousand tons, up 12.41% YoY from 216.41 thousand tons. In the margin, there is a decline of 6.04% from 258.76 thousand tons and an increase of 17.84% over the 5-year average of 206.31 thousand tons for the same period.
In this context, analyzing the historical comparison with already deflated data, in April the average trading price of a 50-kg bag of sugar with up to Icumsa 150 in Ribeirão Preto was BRL 106.73. In comparison with the same month of the previous year, there was an increase of 30.98% over the average of BRL 81.49 per bag, already deflated. Despite strong annual gains, in the margin there was a 1.07% decrease from the average of BRL 107.89 observed in March 2021. Expanding the analysis scope, the average price of April this year is 33.32% above the average price for this period during the last five years, already deflated, which is currently around BRL 80.60.
In the previous month, current prices were 33.49% above the five-year average for the period that, until then, fluctuated by BRL 80.82. As a result, the average price for the last five years between March and April fell by 0.28%, contrasting sharply with the decline observed in the margin, where current prices fell by 1.07%. So, we can interpret that there was a negative distance from the historical average in comparison with current prices in April, although these prices have also retreated in the short term. For April, SAFRAS & Mercado’s expectation was for prices around BRL 106.00, which was 0.69% below the effective average price of BRL 106.73 for the period. For the month of May, SAFRAS & Mercado expects average prices of around BRL 112.00, up 42.02% YoY, 4.93% in the margin and 38.96% from the five-year average for the same period.