Porto Alegre, January 24th, 2022 – While hydrated ethanol fell 10% in the Brazilian physical market and the real depreciated by almost 2%, sugar fell much less, around 3%, resuming the pattern of negative spread of the biofuel. The end of December brought the reversal of the pattern of premiums of hydrated ethanol against sugar prices in New York. This pattern of more attractive biofuel prices can be seen in the immediately preceding month, in November, at 4.36%. However, the most recent data for December already show a differential of 5.27% in the price ratio (in cents per pound) between hydrated ethanol inside of mills and New York sugar. This return to the negative ratio for ethanol stemmed from the sharp decline in ethanol in reals per liter in the physical market, where margins dropped 10.29%. However, the issue did not stop there. The devaluation of the real against the dollar, of 1.95%, intensified the decline in ethanol in cents to 10.65%.
At the other end, we had a market with lower sugar prices as well, but at a much softer intensity than the one seen for hydrated ethanol. The 3.28% decline in sugar prices in New York ended up being much smaller than the decline in hydrated ethanol, which led to this reversal of the scenario from premiums to a negative spread between November and December 2021. It is interesting to note that only in June and November there were premiums for hydrated ethanol, and the entire year had a predominant negative ratio for the biofuel.
For January 2022, SAFRAS & Mercado expects further lows for both hydrated ethanol in the physical market and the real against the dollar. Sugar in New York tends to have moderate gains in the same period. Therefore, the ratio of differentials, which currently oscillates at only over 5% with December data, should deepen its negativity to almost 8% in January.
The average monthly value of hydrated ethanol at BRL 4.05, less 13.3% of São Paulo ICMS and BRL 1,309 of PIS/Cofins, and converted into US cents per pound with an average dollar of BRL 5 .6990 for the period, was equivalent to 16.92 cents, down 5.27% from the average of 17.87 cents observed for raw sugar in New York, already with discounts for freight, elevation and FOB conversion. Year over year, the December average for hydrated ethanol, in cents per pound, showed gains of 50.36% against the level of 11.25 seen in December 2020. On the 2021 average, the equivalent price inside of mills hovered by 15.63 cents, up 55.27% from the average of 10.06 cents accumulated during the same period of the previous year.
SAFRAS & Mercado’s expectation for December was that the comparison between hydrated ethanol and New York sugar would fluctuate by +2.01%, 7.28% higher than the effective data of -5.27% for the period. For January, SAFRAS & Mercado expects the average price in reals for hydrated ethanol to hover by BRL 3.98 per liter outside of mills. Inside of mills, it should be equivalent to BRL 3.31 a liter in Ribeirão Preto. With an expected average dollar of BRL 5.67 against the average price of 19.30 cents for March/22 in New York, which, inside of mills, should be equivalent to 17.99 cents, we will be able to expect a widening of the disadvantage of hydrated ethanol against NY raw sugar to the negative level of 7.93% through the equivalence of hydrated ethanol at 16.56 cents (not including freight).