Porto Alegre, October 18th, 2021 – Harvest of current crop nears the end The data came in line with SAFRAS & Mercado’s expectations for the period and still do not capture the influence of new price highs in gasoline. More mills end activities in September.
Unica’s latest report brings few surprises to the market by reaffirming the sharpest decline in cane crush and production of derivatives. New York ignores new data and remains bearish; the declining pace must be exponential for the next weeks. Unica’s latest biweekly report with late September data was a surprise to the market, but this was only caused because the update occurred a few hours ahead of schedule (8.00 am on October 13) while the effective release took place at 10.00 am on the same day. In fact, the information did not impact the market, as it only brought numbers already expected by the sector and forecast by SAFRAS & Mercado since the previous report, 15 days earlier. One of the most accurate targets to be reached was the one related to the demand for hydrated ethanol in Brazil’s Center-South. SAFRAS & Mercado had warned, in this same newsletter, during the last report, that sales in September would likely reach 1.308 billion liters. This volume was very close to the final data for the period of 1.309 billion liters, with a difference of only 0.08%.
In general, one of the really impacting numbers of the report, together with the sign of very low demand for hydrated ethanol in the region, was that of mills shut down in the second half of September, with 36 units against only 3 in the first half of the month. In total, 41 mills were out of operation in September. If the Unica’s expectation that further 52 mills will end activities in the first half of October is confirmed (which is very likely to happen), the Center-South will have 93 mills out of activity for the current crop, after starting with 252 units in operation. Almost half of the mills will already be shut down in the first half of October. Given this trend, it is clear that the intensity of the reduction in crop activity must be exponential in the next weeks, which must keep cane crushing and production of derivatives with an equally exponential decline.
In short, the 6.88% lower supply for crushing led to a 9.06% reduction in sugar production, while the anhydrous ethanol production fell 4.08%, and hydrated ethanol 4.45%. Besides, while the sales of hydrated ethanol dropped 8.5% in the margin and 25% YoY, those of anhydrous ethanol followed the opposite path, increasing 7% in the margin and 19.8% YoY. The demand for anhydrous ethanol almost hit 1 billion liters in September, which would be a historic record. Textually, the report reinforces the rhetoric that higher prices at mills, mostly above BRL 4.00, are intended to regulate supply, which denotes some inversion of the analysis perspective on demand. Demand has been low due to the high level of demand migration to gasoline, precisely because there is no competitiveness in Brazil since April this year when the supply issue was not so critical, although it was already a concern. SAFRAS & Mercado warns that from now Unica’s data will have less and less impact on prices in New York given the practically irreversible trend underway.
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