Brazilian mills sharply reduced sugar production in the kickoff for the new cane processing season in the world's largest sugar producing region, putting all their effort into boosting ethanol output as they try to reduce exposure to a depressed sugar market. Plants that have already started cane crush this year in Brazil's center-south produced only 173,000 tonnes of sugar in the second half of March, 36 percent less than reported in the same period a year earlier
On the other hand, total ethanol production increased by 31 percent in the same comparison, with hydrous ethanol output rising 80 percent. Hydrous ethanol is a substitute for gasoline in most cars in Brazil and has had a large price advantage over the fossil fuel in pumps for several months, since a pricing policy change by oil company Petrobras and higher taxes charged on the oil-based fuel widened that price gap in mid-2017.
Analysts estimate that on average sales of hydrous ethanol in Brazil's center-south region are giving around 20 percent more profit to mills than what they would get exporting raw sugar to foreign markets. Unica said mills allocated only 21.5 percent of the cane they are starting to crush in the season to sugar production, earmarking 78.5 percent to make ethanol.
"This situation is aligned with expectations for the new crop, for a year more focused on ethanol, and it should increase supplies of the fuel in the domestic market," said Antonio de Padua Rodrigues, Unica's technical director. The large ethanol production during the start of the season is pressuring ethanol prices in the Brazilian market, which fell more than 8 percent last week, and is expected to close the window of opportunity for ethanol producers in the United States to export the fuel to Brazil.
Crush numbers are gradually increasing in the center-south region. Mills processed 7.75 million tonnes of cane in the second half of March versus 3.33 million tonnes in the previous two-week period. Unica also released final numbers for the 2017/18 crop, which officially finished on March 31. Center-south crushed 596 million tonnes of cane in the full crop versus 607 million tonnes in 2016/17.
Sugar production in 2017/18 was 36.05 million tonnes, compared with 35.62 million tonnes in the previous season, while ethanol output reached 26.09 billion litters versus 25.65 billion litters.