Porto Alegre, August 28th, 2023 – The fifth and last week of August will be a transitional period between the months of August and September. With this, the market will be more focused on September prospects than the continuation of August’s movements in the sugar market. With this, SAFRAS & Mercado outlines a scenario of three basic points of attention and the risk of rising sugar prices, both in the external and internal markets. First, we have the most recent indications about the climate risk for cane-producing regions of the Center-South and Midwest of Brazil now for the month of November. Previously, we only had data from August to October, now we have those from September to November.
The rainfall models that were observed for September and October are practically maintained, with great detail about November, which is also expected to be a very rainy month. The most recent maps show that September should be a period with accumulated rainfall between 130 and 160 mm in northern PR. In the south of SP, the accumulated volumes for September range from 100 to 130 mm. In the center of SP we have indications of accumulated rainfall between 80 and 100 mm. A little further up, for northern SP and southern MG, we have indications of accumulated volumes for the month between 60 and 80 mm.
In October, these same maps of accumulated rainfall indicate volumes between 160 and 200 mm for the north of PR and south of SP. In the center of SP the volumes fall to a range between 130 and 160 mm. In the north of SP and south of MG, the models indicate volumes between 80 and 100 mm. November should be a month with greater intensification of rainfall, which is already high between the months of September and October, and in a much broader and general way. In the north of PR we have indications of accumulated rainfall between 160 and 200 mm. In the south of SP we will have volumes between 130 and 160 mm. In the center of SP, the models show indications between 100 and 130 mm. In the south of MG, volumes increase again from 160 to 200 mm.
SAFRAS & Mercado, through its consulting services, has been holding meetings directly with its clients since early July warning about this scenario of much more significant rain than the average of the year for September and October. The news now is that November will also have an even higher rainfall pattern. With this, we can reinforce the alert about November. Therefore, the climatic risk of a sharp reduction in cane crushing extends not only to September and October but also to November, with three consecutive months of regular rainfall that can greatly slow down cane crushing, reducing supply and boosting prices in New York and the physical sugar market.
In New York, September will be a period of transition from the driver position from October/23 to March/24. At the turn from the first to the second half, this inversion should be carried out from the first to the second screen in New York. Thus, price projections will be carried out for March/24 instead of October/23. This new driver contract should migrate from the current range of 24.75 cents (price pattern on Friday, August 25) to levels of 26 cents by the end of September. The presence of rain will be the main vector of this movement, accounting for 40% of the weight of the vector.
Another 40% of the upward force that will affect March/23 comes from Asia, where we have indications of crop failure in India and Thailand. This is the second risk factor for the market in September. The decline in sugar supply from these two countries is nothing new in the market. The difference is that communication in the international media about these events will be more assertive. In early August, SAFRAS & Mercado already warned in its daily report that Thailand would have a sugar supply in its future 2023/24 crop between 8 and 9 mln tons, against 11 mln tons in the previous season. At the beginning of the second half of August, international trader Czarnicow predicted the production of 7.4 mln tons for the country, pointing to a more specific target. Even though they are lower numbers than those by SAFRAS & Mercado, the direction is the same.
At the end of August, it was Reuters’ turn to indicate that the Indian government intends to ban sugar exports from the country, citing three sources in the local government. However, the day after this information, the government itself officially stated that the decision had not yet been taken and that it expected more assertive data regarding the real failure in the country’s supply. Despite the official confirmation not being made, for a good connoisseur half a word is enough. SAFRAS & Mercado expects the sugar supply in the next crop to be around 30 to 31 mln tons, well below the 34 mln tons of the previous season. In addition, since the beginning of June (when the calendar for the monsoon rainy season began simultaneously with El Niño), SAFRAS & Mercado has warned about the delay in the arrival of rains and the extension of the end of the season.
Now, in October, the country’s mills, in their early stage of price setting through hedging strategies via the New York Stock Exchange, should issue clearer notices to international news agencies about the excessive moisture of rains, the low incidence of sunlight on cane fields, and the delay in the crushing start. In September, like at the end of August, the narrative continues with rainfall volumes 50% lower than expected, which is also a vector of climate stress.
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