Porto Alegre, May 08th, 2023 – April was an important period for sugar in New York, which had exponential gains over the daily prices of the current spot contract, July/23. With this, the averages of the same advanced 13.74% compared to the previous month, going from 20.81 to 23.67 cents. SAFRAS & Mercado warns that the average pricing for the month left out higher prices such as the 26-cent levels reached at the end of the month. Otherwise, the evolution in the margin would have surpassed 32%. Basically, the market found itself in a context of overlapping bullish vectors in the short term, which had their pivot with the delay at the beginning of the 2023/24 crop in Brazil’s Center-South due to the rains in the first half of April.
Initially, this delay raised concerns about maintaining the reduced supply scenario in the short term for another 45 days. After that, concern shifted to the logistical overlap with soybean shipments in the ports of Santos and Paranaguá. The soybean flow is also relatively late due to weather problems during planting in December 2022. Therefore, when cane crushing finally resumes in May with greater intensity, the supply of new product will cope with new delays in shipments until July, when soybeans also have a very strong loading period.
But in Brazil, concerns extend far beyond the logistical issue. This is because the prolonged rain in the first half of April is likely to affect the quality of cane fields due to the low incidence of sunlight in the period. As a result, the delayed crushing and late shipment of sugar must also be hampered by the short supply of the commodity because of low-quality cane fields in the first phase of the harvest. SAFRAS & Mercado warns that the return of sunny weather during the second half of April will not reverse this trend. Besides these vectors, there are also the crop failures in India, which must fluctuate between 32 and 33 mln tons, with exports falling by almost 50% (from 11.2 to 6.1 mln tons), and China (from 10 to 9.0 mln tons).
With this, SAFRAS & Mercado projects that the average price of July/23 in New York in May must be sustained at around 25 cents, indicating increases of 5.63% in the margin, 30.47% YoY, and 76.93% over the five-year average for the same period. Last month, SAFRAS & Mercado had estimated an average of 20.30 cents for April, which was 14.23% below the effective data for the period due to the surprise with the rains in the first half of April on cane fields in the South-Center.
Crystal sugar advances 6% in the margin in April
The physical market of crystal sugar in the Center-South had a month of April marked by strong growth in trading averages. The price reference in Ribeirão Preto increased by 6.23% over the previous month, as well as 19.79% over the five-year average for the same period, already deflated and updated to current values. This hike in prices stemmed from the delay in the cane crushing process for the new 2023/24 crop, which had a very rainy period in the first half of April. These precipitations prevented growth in the production of derivatives, including crystal sugar.
Even so, SAFRAS & Mercado warns that the hikes were not greater only due to the more withdrawn posture of purchasing industries, which avoided exposing themselves in the market in this phase of delayed crushing. With this, prices only rose based on the reduction in supply from mills, without the expected extra support from the increase in demand. Buyers entered in the physical only to get specific volumes, intended to meet more short-term consumption. Industries expect that, despite being late, supply will be back to normal in May and June.
Even so, SAFRAS & Mercado warns that higher prices should also be sustained in May, with new advances expected besides those already seen in April. This is because even if grinding is normalized, the cane to be processed will have a TRS level impaired by the lack of sunlight due to the prolonged rainfall in April. Even advancing in May, there is no guarantee that the supply of sugar will grow at the same intensity. As a result, industries that are restricting their demand may be forced to enter the market even in the face of higher price levels.
Last month, SAFRAS & Mercado expected the April average prices at BRL 133 per 50-kg bag of crystal sugar between Icumsa 150 and 180. These prices were 4.59% lower than the effective average for the period of BRL 139.40 per bag. For May, the expectation of SAFRAS & Mercado is for prices at BRL 145 per bag. With this, we may have a scenario of domestic prices 13% higher than those seen at the same time in the previous year (updated by inflation) and 4% higher than the most recent average for April. Compared to the 5-year average for the same period (updated by inflation) gains will likely hit 41%.
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