Brazil's center-south is expected to produce 27.9 million tonnes of sugar this year, 22 percent less than in 2017, as mills continue to strongly favour ethanol production at the expense of the sweetener, Sao Paulo-based consultancy Datagro said on Wednesday.
Datagro revised downward its sugar production forecast from an already low number of 28.2 million tonnes released in July as depressed global prices make ethanol a better option for millers. The consultancy increased its projection for ethanol production to 30.1 billion liters from 28.75 billion liters.
Datagro's chief analyst Plinio Nastari said during a webcast with reporters that the unusual crop, with only 37 percent of cane allocated to sugar production, is causing Brazilian sugar exports to fall sharply. "The amount we exported in July was the lowest for the month since 2006," he said.
Sugar prices in New York hit the lowest level in 10 years this week, leading many producers worldwide to sell at a loss or to stock the sweetener waiting for better prices. Nastari said that mills in Brazil which failed to hedge their sugar sales at more favourable rates in the past are cutting production as much as possible. He estimates that only around 65 percent to 70 percent of the Brazilian sugar is hedged.
Meanwhile, ethanol stocks are much larger than last year, which is capping any price rise locally, increasing the price advantage over gasoline at the pumps. Datagro estimates that current stocks of the biofuel are above levels seen at the same time last year by around the equivalent to 30 days of consumption.
Nastari does not see that as a problem. Mills will finish the crop 20 days before the normal period due to the dry weather that allows for a quick processing pace, and will need to have enough ethanol inventories for the long inter-harvest period ahead.