Market ‘too optimistic’ on Brazil sugar output prospects

(Agrimoney) – Sugar production in Brazil’s key Centre South district will rise next season, but by less than many investors believe, influential industry spokesman Antonio de Padua Rodrigues believes.

Unica, the Brazilian cane industry group, has yet to release official forecasts for the cane harvest, and sugar output, in 2016-17 in the Centre South, which is responsible for some 90% of domestic production of the sweetener.

“The official announcement about the sugar cane crop projection will be only in April, at the harvest beginning,” Unica said in a statement to Agrimoney.com.

However, Mr Padua believes that Centre South sugar output will rise by some 2m tonnes next season to about 33m tonnes, according to bank analysts who held a meeting with the Unica technical director.

‘Market too optimistic’

“Mr Padua believes that sugar production will reach 33m tonnes in the Brazilian Centre South in 2016-17,”analysts at Itau BBA said.

That figure is lower than estimates from many other analysts, with Datagro, for instance, forecasting output of 33.5m-34.5m tonnes, on an estimate for a cane crop of 610m-630m tonnes, up from 605m tonnes expected for this season.

Platts Kingsman forecasts sugar output of 35.12m tonnes next season, on a cane crop of 620.0m tonnes.

“We left the meeting with the impression that the market overrates the potential increase in sugar output,” Itau BBA said.

Mr Padua reportedly believes that the cane harvest will be 615m tonnes next season – in line with this season’s output under a revised accounting method.

The bank also quoted expectations of a 3-point increase in the percentage of sugars in cane, and a 2-point rise, to about 43%, in the proportion of cane being directed at making sugar, rather than ethanol.

Maximum crush

Mr Padua also believes that Centre South mills are approaching their effective maximum capacity, which has thanks to mechanisation come down some 5% to 640m tonnes a year.

While the nominal maximum capacity is about 800m tonnes a year, that assumes no rain delays, or maintenance stoppages.

“Historically, the highest usage ever achieved was close to 85%,” pre-mechanisation, the Itau BBA report said.