Source: UNICA. Design: StoneX.
Given greater volatility in the commodity markets, the question revolves around the behavior of the mills’ productive mix. In the case of sugar, the good performance of the crop in India makes the S&D more comfortable for 2021/22 (Oct-Sept), a trend that has been evidenced by the NYN2-NYV2 spread, which reached a carry of 0.09 c/lb on Tuesday (29). However, as mentioned on Monday, a possible limitation of Indian exports can still add a bullish tone to sugar futures.
On the demand side, global sugar consumption is heavy, particularly in Southwest Asia countries, which can cause the international market to try and attract sugar from Brazil. On the other hand, the increased number of Covid-19 cases in China is a cause for concern, especially as new measures of social isolation may lead to logistical barriers. On Monday, for example, the seven-day moving average pointed to 1.88 new cases of the disease in the Asian country, more than double the infections observed at the beginning of March.
Regarding the ethanol market, UNICA data showed a relative recovery of domestic consumption in the Center-South. In the first half of March, domestic demand for ethanol was 1.1 million m³, a two-week growth of 14.6%. However, when compared to the same period last year, this volume represents a drop of 8.7%.
Despite anhydrous’ prominence, it is worth noting that the share of hydrous in Otto cycle fuels consumption had a 1.6 percentage point increase over two weeks, reflecting a price parity between ethanol and gasoline that is closer to 70% in the region. Data from the ANP for last week pointed to parity of 69.3% at CS stations. Still, uncertainties in the macroeconomic field and the lower purchasing power of final consumers remain a point of attention for urban mobility.
Over the next few weeks, ethanol prices should be guided by comfortable stocks, but mainly by foreign exchange and crude oil movements in the international market. The advance of the pandemic picture in China and greater optimism about the negotiations between Russia and Ukraine have pressured Brent’s trading level, which already operates closer to USD 110/barrel. In light of this and the Brazilian real appreciation, the price of gasoline A at refineries would have to be readjusted negatively by BRL 0.1317/liter to maintain parity with international prices, according to StoneX calculations.
On Tuesday (29), ex-mill hydrous based in Ribeirão Preto/SP was quoted at BRL 4.10/liter, a weekly increase of 3.8%. In parallel, the #11 May/22 contract reached a low of 18.84 c/lb, but closed the ICE/NY session quoted at 19.11 c/lb, accumulating a daily 2.5% decline. Consequently, ethanol operates with a 9.6% premium over raw sugar, which could suggest a more attractive environment for alcohol distillation.
It is important to consider, however, that the rate of sugar contracting for export by CS plants is early, with 76.4% of the next crop’s production already fixated on the ICE/NY, which is expected to limit significant changes to the mix. Based on this, it seems likely that sugar production in the CS sugarcane belt will be close to 34.5 million tonnes in 2022/23.
