Porto Alegre, November 1st, 2021 – The month of September was marked by a strong expansion in the advantage of sugar prices over average ethanol prices. Only in the margin, between August and September, gains changed from 8% to 15%. This strong growth reverses a pattern of weak single-digit gains that have been seen for the past four months. Between May and this year, the average premiums for Icumsa 150 crystal over the average of anhydrous and hydrated ethanol ranged between 5% and 8% depending on the period. However, it is important to remember that even doubling between August and September, the current crystal sugar premiums do not even approach the highs posted earlier this year when the sugar advantage oscillated by almost 37%, as was the case in January this year.
Nevertheless, this scenario must change in case the crystal sugar growth patterns continue to strengthen as they have since early September. For October, the outlook is for the premium scenario to be maintained around 15%, while it is important to bear in mind that hydrated ethanol has clear limitations in terms of competitiveness with gasoline, which cannot be expanded that much, even if it no longer exists in all Brazilian states since April this year. Anhydrous ethanol, in turn, has its endemic limitation by making up only 27.5% of gasoline, and even this level of blend is already questioned in the short term.
Crystal sugar, on the other hand, has no limits for earnings. This is because, besides the current crop losses in the Center-South (from 605 to 515 million tons), the market still faces a prolonged off-season period of 5 to 6 months. Therefore, the result is that mills have withdrawn as much sugar as possible from the market with the aim of building stocks for the longer off-season. These stocks, moreover, tend to be at levels below the previous crop due to, of course, production losses. Therefore, the strong short-term gains of crystal sugar are likely to be intensified and, with that, the ethanol premiums.
In this context, in September, the average of anhydrous ethanol trading fluctuated by BRL 3.98 a liter while hydrated ethanol fluctuated by BRL 3.94 per liter, both in the Ribeirão Preto region. These values converted into 50-kilogram bags were respectively equivalent to BRL 119.40 and 123.32, which result in the average of BRL 121.31, which serves as a comparison with sugar. In the same period and in the same region, the 50-kilogram bag of crystal sugar, with up to Icumsa 150, fluctuated in the range of BRL 140.31 against BRL 125.65 in the previous month. Thus, the price advantage of white sugar over ethanol (average of anhydrous and hydrated ethanol prices traded in the same period and region) traded in the domestic market was 15.66% in September.
The sugar advantage ended up retreating 14.78% from the same time of the previous year when the commodity was 30.44% more profitable than the biofuel. Despite this, when compared to the previous month, there is an increase in the advantage of 7.23% of sugar over ethanol when the commodity paid 8.43% more than the biofuel. Compared to the season’s average, the data for September were 5.80% lower, with the average for the 2021/22 crop staying at 9.87%.
The expectation of SAFRAS & Mercado for September was that the advantage of sugar over ethanol would oscillate by 13.97%. With that, the estimate was 1.69% below the effective data of 15.66% for the period. For October, SAFRAS & Mercado expects sugar to have an advantage of 15.48% over ethanol in the Brazilian physical market. These calculations take into account the average expectation of BRL 4.03 per liter for hydrated ethanol, BRL 4.05 for anhydrous ethanol, and BRL 143.00 a 50-kg bag for crystal sugar with up to Icumsa 150. In the long term, since January 2008, sugar has a 29.58% advantage over ethanol.