São Paulo – Brazil should keep its sugar exports level in the upcoming crop season, according to estimates from Plinio Nastari, the chairman of Datagro, a sugar and ethanol consulting firm hosting an international conference this Monday (20th) and Tuesday (21st) in São Paulo. The commodity’s global prices are low, and therefore in the 2014-2015 crop, set to begin in October, Brazilian producers will likely focus on ethanol, rather than sugar, when the time comes to process sugarcane.
The choice for ethanol will be a way of forcing the market into an upward correction of sugar prices, says Nastari. Sugar remained cheap during the 2013-2014 crop, but prices are expected to improve over the next few years, since global output should fall short of consumption by 3.2 million tonnes in the upcoming season, according to estimates from Datagro. There was a surplus in the last crop.
Global inventories, however, will remain high, and this should prevent sugar prices from going up any time soon. Towards the end of September, the global inventory-to-consumption ratio was 56.6%. By late September next year, the ratio should be 42.8%. Nastari believes prices will start dropping once the ratio falls below 42%. Brazil should export 23.95 million tonnes of sugar in the next crop.
During the 2014-2015 season, Brazil should harvest 607.6 million tonnes of cane, which should be processed into 35.06 million tonnes of sugar and 26.4 billion litres of ethanol. Nastari claims that at least until halfway into the next crop, producers will favour ethanol like they did in the last crop. Ethanol prices are expected to rebound more than sugar’s.
The industry expects ethanol to become more competitive against gasoline in Brazil’s domestic market over the next few months, since the latter’s prices may increase and the Cide tax on ethanol will be reinstated. Currently, gasoline prices to end consumers are controlled by government and subsidized, preventing ethanol from being more competitive and gaining market share. The strategy is being maintained so inflation will not spin out of control. On the international level, however, says Nastari, the price of Brazilian ethanol is competitive.
The outlook for sugarcane farming is not good as a result of the issues facing the industry. According to Nastari, since 2009, crops in Mid-South Brazil – the country’s leading cane-growing area – have struggled with weather issues. Furthermore, the industry is adapting to crop mechanization and coping with reduced competitiveness due to low gasoline prices.
This scenario has caused companies to accumulate debt, keep investment stagnant and spend less-than-desirable sums on technology. Actual investment in crops was low, and this should also bear down on yields in the coming harvest. According to Nastari, the industry owes a combined R$ 66 billion (US$ 27 billion), a higher amount than its annual revenues altogether.
Despite its domestic issues, Brazil’s ethanol and sugar industry is still considered a global landmark. According to the CEO of the International Sugar Organization, José Orive, who delivered a lecture during the conference, Brazil is “king of the mountain” when it comes to sugar, and the rest of the world follows suit. He claims many people contact his organization looking to learn more about the Brazilian sugar industry’s actions. Orive said a new regulation will take effect in the European Union in 2017; local farmers, who make sugar out of beets, will no longer have an output ceiling, and thus will be allowed to grow as much as they want, among other measures that should affect the global market.
The 14th Datagro International Conference on Sugar and Ethanol is attended by delegates from 32 countries, according to a press release from the organizers. The first day of the meeting was attended by several Brazilian officials, including the interim minister of Agriculture, Livestock and Supply, José Geraldo Fontelles, and the secretary for Agriculture and Supply of the State of São Paulo, Mônika Bergamaschi.
*Translated by Gabriel Pomerancblum
