A switch by Brazilian cane mills back towards increasing sugar in their production mix, in the face of weakening ethanol prices, may not lead to a surge in supplies of the sweetener, one of the country’s top crushers said.
“We understand that all the mills are going more towards sugar,” as opposed to ethanol, in their cane crush, said Felipe Vicchiato, the Sao Martinho finance director.
The change of an early-2022-23 trend which saw mills favouring ethanol very much in their production mix reflects a retreat in ethanol values, and in particular values of hydrous ethanol, which have been undermined by gasoline price cuts by Petrobras, Brazil’s state-run energy giant.
Hydrous ethanol competes with gasoline for custom by drivers of so-called “flex fuel” cars, as opposed to anhydrous ethanol which is blended into gasoline.
Gasoline vs hydrous ethanol
“The demand for hydrous is quite low here, consumers preferring gasoline because of the circumstances,” Mr Vicchiato told investors.
“Consumption of gasoline is very high and hydrous ethanol is lower. We see consumers consume more gasoline, given the speed by which the prices went down.
“Because of profitability, everybody is going more towards sugar.
“The price of sugar today is equivalent to about more than 10% with hydrous [ethanol].”
The trend was borne out by data on Wednesday from Unica, the Brazilian cane industry group, which showed mills in the key Centre South region using 47.8% of their cane to making sugar in the second half of last month.
That compared with 47% in the first half of July, and 45.4% in the second half of June, with the average allocation for 2022-23, as started in April, at 44.4%.
The switch, combined with growth in volumes of cane crusher, drove Centre South sugar output for the second half of July to 3.30m tonnes, a rise of 8.4% year on year.
‘There is a limitation…’
However, “there is a limitation” to the amount of Centre South cane that will be available to harvest, Mr Vicchiato said, noting damage to crops from weather setbacks including frosts a year ago.
“Probably the current harvest will be equal to the last one in the best hypothesis,” he said.
“So production of sugar shouldn’t be much higher than in the last harvest.”
Some commentators, including Brazil’s official Conab bureau, have forecast a 2022-23 Centre South cane crop similar this season to the 523m tonnes reported for 2021-22, although the consensus is for a higher result, with a Reuters poll two weeks ago showing a figure of 550m tonnes.
However, on sugar, the poll estimated this season’s output at 32.3m tonnes, up by less than 300,000 tonnes year on year.
Sap Martinho reported a drop in its cane yield to 71 tonnes per hectare for the April-to-July quarter, from 75 tonnes a year before, citing dryness and frost damage, with the average levels of sugars per tonne of crop weaker too.