Brazil sugar output eases, as real recovers

(Agrimoney) – Sugar production in Brazil got off to a soft start to the season, despite a rise in the cane harvest, as mills favour ethanol production, according to cane industry group Unica.

Centre South cane crushing in the first half of April, the first month of 2015-16, increased by 11% year-on-year, to 18.3m tonnes, Unica said.

But sugar production in the region, which accounts for some 90% of domestic output, fell by 8% to 388,000 tonnes, as mills diverted more the cane for making ethanol.

The proportion of cane going into making ethanol rose to 69.8% from 66.3% – allowing output of the biofuel to rise by 21% to 801m litres, despite expectations earlier in the season that a weak real would boost the appeal of the sweetener.

Brazil exports far more of its sugar than its ethanol, meaning that the sweetener should see increased appeal at a time when a weaker currency boosts the competitiveness of shipments.

‘Reducing hedging pressure’

In fact, the real has recovered much ground against the dollar – some 12% since the 12-year low set on March 20.

Sucden Financial earlier flagged that the “renewed strength in the real versus the dollar” has been evident in “reducing hedging pressure from Brazilian millers.

Cane crushers may “now be concentrating on hydrous ethanol production early in the campaign which is up to 0.5 cents per pound more remunerative than sugar at the moment, spot basis, and also has the advantage of improving much-needed cash flow”, being sold directly on the domestic market.

Brazil is by far the world’s largest exporter of sugar, and data on the Centre South harvest will prove key to sugar pricing in the months to come.

April marks the official start of the crushing season, although some mills started crushing early this season in an effort to spread overheads and support margins at a time when sugar prices are, on the international market, near to six-year lows.