Porto Alegre, March 10th, 2025 – February was a period of lower prices for the current May/25 driver contract, which had average prices of 18.62 cents. SAFRAS & Mercado warns that the first half of February was very different from the second half of the month. The first fifteen days of February were marked by minimum prices in 8 months for the current May/25 driver, which closed down at 16.85 cents, with lows even nearer the level of 16.00 cents.
However, the second half of February was marked by strong levels of recovery in prices and their advance basically due to the sum of four medium-term factors. The first one was India, which had its narratives of early completion of the current 2025/26 crop reinforced by several mills in key producing states ending operations in February rather than April and May, as occurs in all seasons.
The situation in India is aggravated by the fact that this same new season started 30 to 40 days later, depending on the production unit, due to the prolonged rainfall during the last monsoon season. There are also persistent reports of the incidence of the so-called “red rot” fungus that impacts the productivity of cane fields. In this context, narratives are beginning to emerge about a supply of 26 mln tons in India instead of the 33 indicated by ISMA and the 34.5 by USDA. The second bullish factor comes from the rollover movement from the first to the second screen, that is, from March/25 to May/25.
This generated its own dynamic of increased purchasing power for the second screen, which was already accumulating the upward vector due to the risk that is being created for the Indian crop. We also have the third upward vector, which is the overlap of the exchange rate factor in Brazil with continuous movements of appreciation of the real against the dollar. At the beginning of February, the dollar was fluctuating at the level of BRL 5.80, while at the end of the month, it was fluctuating at BRL 5.70 and going to BRL 5.69.
It is interesting to note that the greater the strengthening of the real against the dollar, the lower the remuneration of Brazilian mills with sugar exports during the new crop that begins in April due to the lower internalization of export revenue, set in dollars. As a result, mills that are in the decision-making phase regarding the production mix (which occurs exactly between January and February of each year) end up opting to simply continue to fulfill the supply contracts already signed with their traditional and long-standing buyers, avoiding closing export contracts for new volumes that exceed existing obligations.
Another point that reinforces this interpretation is the remuneration pattern of hydrated ethanol against raw sugar from New York, with both quoted in cents a pound and placed within mills and without freight cost. February was a period in which the disadvantage patterns in this remuneration of hydrated ethanol oscillated at -20% on average (some days even lower than that, at 19%). This disadvantage pattern seems very high, but it is low when compared to the average price correlation pattern between both, which, throughout 2024, showed downward patterns in the range of 30% to 40%.
Therefore, SAFRAS & Mercado warns that the less negative than usual arbitrage of hydrated ethanol prices compared to raw sugar in New York is seen as a possible fourth bullish vector for sugar, since the mills end up seeing a less negative correlation than expected in the face of a market with a larger scale of demand and exponentially faster financial liquidity, which is the case of hydrated ethanol. This justifies SAFRAS & Mercado’s outlook for a mix heavily concentrated on ethanol in the future 2024/25 crop, at 52% for hydrated ethanol and 48% for sugar over the year, also supported by the strong growth in the cane crushing outlook, which should approach 650 mln tons in 2025/26.
Last month, SAFRAS & Mercado had estimated average prices for raw sugar in New York in February at the level of 18.70 cents, which was 0.44% above the effective average for the period. Now for March, SAFRAS & Mercado expects average prices for May/25 in the range of 19.50 cents, which, if confirmed, should represent gains of 4.7% in the margin, a decline of 12% YoY, and a decline of 2% from the 5-year average for the same period, both adjusted by inflation and brought to current values.
