Ethanol started to have premium over NY Sugar futures in November


   Porto Alegre, December 20 th, 2021 – While hydrated ethanol advanced more than 7% in the physical market, sugar had gains of only 1.12% in November, even with the real falling 0.4% against the dollar, neutralizing part of the gains from ethanol. The end of November was marked by the reversal of the scenario of differentials, or negative spreads, for premiums between hydrated ethanol in the physical market and sugar in New York, both in cents per pound and placed inside of mills. Thus, on average in November, hydrated ethanol had premiums of 4.36% against New York sugar, reversing a pattern of differentials that had been registered since April 2020. Therefore, the November mark was the reversal of a mode of differentials that were seen between hydrated ethanol and sugar for 20 consecutive months. Looking at the daily values of November, it was possible to see that not all days involved premiums, with seven days being marked by differentials for hydrated ethanol, which reached a low of 3.92% on November 24.

        The day with the highest premiums for hydrated ethanol was on November 3, when the biofuel had gains of 10.06% above those from sugar. The movement stemmed from the 7.59% high in hydrated ethanol prices in reals per liter in the margin between October and November. In the meantime, hydrated ethanol still had this advance minimally neutralized by the devaluation of 0.43% of the real against the dollar in the same period. The detail is that the advances of sugar on the New York exchange were also minimal, of 1.12%, which, placed inside of mills, ended up being a little higher, of 1.21%.

        The monthly average value of hydrated ethanol at BRL 4.52, discounting 13.3% of ICMS from São Paulo and BRL 1,309 of PIS/Cofins and converted into cents per pound, with an average dollar of BRL 5.5507 in the period, was equivalent to 19.31 cents, up 4.36% from the average of 18.51 cents observed for raw sugar in New York, already with the discounts of freight, elevation, and FOB conversion. Year over year, the November average of hydrated ethanol in cents per pound showed gains of 77.83% against the level of 10.86 cents in November last year. On average in 2021, the equivalent price of hydrated ethanol inside of mills is 15.51 cents, up 55.77% from the average of 9.96 cents accumulated during the same period of the previous year.

    The expectation of SAFRAS & Mercado for November was that the comparison between hydrated ethanol and sugar in New York would oscillate by +13.06%, up 8.70% from the effective data of +4.36% in the period. For December, SAFRAS & Mercado expects the average price in reals for hydrated ethanol to fluctuate by BRL 4.20 per liter, outside of mills. Inside of mills, it should be equivalent to 3.51 per liter, based in Ribeirão Preto. With an expected average dollar of BRL 5.51 against an average price of 19.00 cents for the March 2022 contract in New York, which, inside of mills, should be equivalent to 17.67 cents, we can expect an increase in the advantage of hydrated ethanol over NY raw sugar to 2.01% through an equivalence of hydrated ethanol at 18.02 cents for delivery without freight.