Ethanol starts to have premiums over sugar in NY in March


   Porto Alegre, April 18th, 2022 – The strengthening of the real against the dollar and the rise of hydrated ethanol in reals per liter in the physical market in March surpassed sugar gains in the same period. March was a period marked by the important reversal from differentials to premiums given the price ratio between hydrated ethanol in the physical market and raw sugar in New York, considering both in cents per pound and placed inside of mills. As mentioned, the price ratio changed from differentials of -4.67% in February to premiums of +8.64% in March, with a 13.39% high in the margin. This strong advance in the advantage of hydrated ethanol stemmed from the 12.26% appreciation in the biofuel prices in reals per liter traded in the physical market, which were strongly boosted by the 4.43% appreciation of the real against the dollar.

    The combination of strength of these two vectors was so intense that it overcame even the important 5.95% hike in raw sugar prices in New York for the current driver contract, May/22. For the month of April, SAFRAS & Mercado even expects a scenario of expansion of these premiums to the level of 14.84% based on an expectation of hydrated ethanol prices in the Center-South at BRL 4.15 per liter, the dollar at BRL 4.70, and an average price of raw sugar in New York around 19.80 cents.

    Therefore, the strong gains in the arbitrage of hydrated ethanol versus gasoline observed in March must not only be repeated in April but also increased. Once again, the sugar earnings must be surpassed by the appreciation of ethanol and the maintenance of a relatively stable exchange rate within the currently already valued standards. With the March premiums, this month is the first of the year to have a positive correlation for hydrated ethanol, which had gains before this only in November last year when premiums fluctuated by only +4.76%, much below the current standard and which must grow in April.

   Before that, there was even a widening of the differentials from January to February, with the average correlation for the month going from -0.60% to -4.76%. As until then the perspective was of more intense losses for hydrated ethanol due to the proximity of the new crop, low demand at pumps and high stocks at mills, the market was expecting an even more negative correlation for hydrated ethanol for March, which ended up not being confirmed. It is interesting to note that the current premiums are 13.39% above the previous month’s differentials, when the correlation was at -4.76% for hydrated ethanol.

   Year over year, we have an increase in this distance to 14.97% from the differentials of -6.34% in March 2021. Compared to the 5-year average for the same period, there is a slightly smaller distance, but relatively similar, of 11.36% from the average differentials of 2.72% seen at the same time of the year.