A decline in the margin occurs as the 2022/23 new crop approaches and buyers are more withdrawn. Yet, the bearish pattern in the margin was smaller in February than in January. The most recent data for average crystal sugar prices with up to ICUMSA 150 in the interior of São Paulo show a scenario of maintenance of annual gains in February. Despite sustaining the positive vector, the annual pattern of gains in February [+23.10%] was lower than in January [+30.60%]. Despite this, in the margin, we have a less negative scenario. This is because the short-term evolution of prices of the current month compared to the previous one ended up showing a reduction in the downward pattern that had been observed until then. In January this year, the fall in the margin hit 11.07%, while in February the reduction was only 4.56%. So we have a pattern of negative year-over-year growth and increasingly smaller declines in growth in the margin in these first two months of 2022.
And what is behind all this? Basically, we have a market at the end of the historically long off-season, but with high stocks. Then we have the first counterweight to fundamentals that helps explain a trend for negative growth in the annual comparison. In the margin, however, the pattern of decline tends to be lower in view of the saturation of the low levels already observed since December 2021, when the average price still fluctuated at BRL 170.72 per 50kg bag, which later dropped to BRL 151.81 in January 2022. From January to February, the fall continued, but to a lesser extent, reaching BRL 144.89. Moreover, SAFRAS & Mercado warns that these prices are the average for the month and that, still in the fourth and last weeks of February, daily sugar prices ranged from BRL 136 to 132 per bag.
Therefore, given the longevity of the off-season, there has been some bullish support for sugar, which made it react from the level of BRL 144 on average in February to the highest standards seen in the last week of the month, giving a preview of what can be expected for March. Despite this, SAFRAS & Mercado warns that sharper highs above BRL 150 a bag tend to be less likely, since during the second half of February at least 15 mills had forecast to start the 2022/23 crop ahead of schedule and other 20 in March. This tends to increase supply availability even though the production mix levels are more concentrated in ethanol, on the average of 70% in the first ten weeks of crushing. Even so, the trend is for an expansion in the sugar supply from the new crop, which should clearly limit the gains to be seen in March, although part of the buying force of mills is gradually resuming.