Porto Alegre, July 10th, 2023 – In July, pricing should be higher for the October/23 averages; Over the year, prices still show sharp highs of around 29% in June, although at levels lower than the 32% gains observed in the previous month
June was a negative period regarding the general average of October/23 negotiations on the New York Stock Exchange. In the margin, compared to the previous month, the decline was 3.23%, which proved to be very mild compared to the accumulated devaluation of 15.17% seen for this asset only in the fourth and last week of the month. However, for the month of July, SAFRAS & Mercado warns that the total pricing of this downward movement should be observed for the general average of the period. So much so that SAFRAS & Mercado expects average prices to be around 21.00 cents for October/23, with an expected decline in the margin of 14%, against the slight negative adjustment seen in June of 2.5%.
The base for such a significant decline is the effectiveness of the pricing of fundamentals for the 2023/24 crop in Brazil’s Center-South. The rains that hit the cane fields in this region in the second half of April and the first half of June ended up delaying the cane crush but also increased its productive potential, the quality and quantity of volume to be processed this season. It is on this basis that SAFRAS & Mercado carried out its second revision of the crop estimate for the 2023/24 season from 578 to 585 million tons in the Center-South, starting from an initial estimate in December 2022 of 565 million tons.
The assimilation of a very high crop in the Center-South, together with international structural and macroeconomic problems observed since the beginning of the second quarter of this year, ended up influencing the October/23 price line invariably to a strong downward curve in the last week of June, which must last at least until the end of July. We have a market scenario in which both fundamentals on the part of Brazil and the international macroeconomic scenario are negative in the medium term.
However, there is still room for a climate alert, driven to the months of August, September and October. In this period, the rains should return to the cane plantations in Brazil’s Center-South, according to Inmet. In Asia, the Monsoon rains of the 2023 season must be prolonged by 30 to 40 days after the official calendar of the phenomenon, which runs from June to September. Therefore, even at the end of October we may experience these rains that started 30 days later than usual, at the end of June rather than at the beginning of this month.
This extension of the Asian Monsoon rains may generate indications of excessive rainfall in the country’s cane fields, reducing the volume of local sugar for the second consecutive crop, similarly to what happened last year. In Brazil, the rains in August and September could again delay cane crushing and VHP shipments in Santos, reducing the availability of international supply of the commodity, which will already be negatively impacted by the extension of the Monsoons in India. With this, there may be a new upward inflection in New York prices in this period, back to the region of 26 cents.
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