India and Brazil, the two big sugar powerhouses could diverge this year
This 21/22 crop year, Indian sugar exports could exceed 8.00MMT, an 11.0% increase over the 20/21 7.2 MMT. Brazil on the other hand was looking at a repeat of the 26.047 MMT, they exported for 21/22, but as Brazil starts the 22/23 crop year, ethanol prices are showing a 10% premium over sugar so, at least for the start of the year, Brazilian mills will prefer, if they can, to concentrate on ethanol. Hydrous prices rallied 17.78% in Real, in March, and 29.5% in US dollar. This despite what appears to be comfortable ethanol stocks held by Brazilian mills as of March 15th. Hydrous stocks were 1.895 billion liters (37.9% above last year) and anhydrous stocks were 1.389 billion liters (34.3% above last year) . In the first half of March consumption of hydrous was 632 million liters and anhydrous was 434 million liters. With only a few mills expected to start the second half of March, it will depend on how many mills can start at the beginning of April. We would also wonder how much of those stocks are also held by the corn ethanol mills, which are largely located a long way from the consumption center of Sao Paulo. The jump in ethanol prices would appear to show that stocks are not where the consumption is, or are already committed.
In India, two weeks ago there were some comments by an unnamed government authority talking about possibly limiting exports to 8.0 MMT. Later another government official, also not named, denied that the government would not limit exports at 8.0 MMT. Given that India is having to deal with the appreciation in crude prices, as well as its trade deficit, the Indian government will allow sugar exports to flow as long as internal prices don’t suddenly jump. Prices have been flat for the last few weeks, but no big price jump yet. Early predictions for India’s upcoming monsoon looks like it will be “normal”, but March’s temps were the highest in 122 years and precipitation was the lowest since 1908. It is still early for any worry reaction, but the last time temps were near this high was the tail end of a moderate El Nino back in 2010.
This last crop year, Brazilian mills saw 46% of their sugarcane be directed to sugar production. A month ago most analysts were expecting a repeat of a similar percentage, if not more going to sugar. Now, some analysts are cutting back their percentage to 44.5%. Each percentage point is roughly 750 k tons of sugar production, so currently we are looking at 1.0 MMT drop in sugar production from earlier estimates. Most seem to have forgotten that back in 20/21, the Brazilian mills shifted their ethanol/sugar mix by enough to shift sugar production by 10 MMT. This is not to say, we are expecting a full shift back. Given that some 19 MMT of sugar exports has seen their export price already fixed so it would be tougher to unwind that fixation, given it would be currently at a loss. But that still leaves roughly 6 MMT of potential export that has not been fixed. There is a potential at this point to see more than 1.0 MMT of sugar to be shifted.
At this point in time, how much more sugar can Indian mills offer before the government begins to get nervous? Some believe that India’s export sales are now between 7.00-7.5 MMT. So we are talking about another 500-1.00 before we breach 8.0 MMT. Can they push to 9.00 MMT? Keep an eye on internal sugar prices. You can be sure the Indian government is.
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Mr. Michael McDougall is Managing Director at Paragon Global Markets, LLC, New York, USA. He has been active in commodity futures for 35 years.
