Cosan, the largest Brazilian conglomerate producer of bioethanol, sugar and energy, have revealed that Brazilian sugar cane mills are likely to accelerate a shift away from ethanol production to sugar in the upcoming season as sharply lower oil prices erode and needed to cut gasoline prices at the country’s refineries. This affected the competitiveness of the biofuel against gasoline.
Brazil’s largest sugar and ethanol producer Raizen said yesterday it would speed up plans to produce more of the sweetener in the approaching 2020-21 cane crushing season after the global oil price drop. “We had already planned to allocate more cane to sugar, and the drop in oil prices will only accelerate this,” Raizen’s vice president Ricardo Mussa said at an investor event held by Brazilian conglomerate Cosan, which holds 50pc of Raizen with partner Shell.
Brazil will likely boost its sugar output in the 2020-21 season by 3mn-6mn tons from 30.15mn t in the current season. In 2020-21 center-south cane crop was projected by the broker at 597.8 million tonnes, 1.4% larger than the 2019-20 season as favorable weather and a higher-than-normal renovation rate are seen boosting agricultural yields.
Raizen expects to harvest a larger cane crop in the 2020-21 season, with forward guidance currently at 61mn-64mn t, up as much as 7pc from the current 2019-20 season that ends on 31 March. Brazilian sugar and ethanol producers have started cane crushing for the new crop earlier than in the previous season, and are expected to produce more sugar and less ethanol, said consultancy and broker INTL FCStone.
According to local commodities risk analyst Arnaldo Correa of Archer Consulting, Brazilian cane mills had been planning to increase sugar production in the coming season that starts crushing officially on 1 April, with prices already fixed – through hedging on the Ice futures exchange – for 78pc of the expected sugar output in the 2020-21 season
A global sugar deficit is projected to reach 9.4mn t this season because of smaller production from Thailand, India and most importantly Brazil, according to the International Sugar Association. “We’ve never had a year in which mills had fixed the price of such a large portion of their (future) sugar sales before crushing started,” Correa said in note.
Cosan chief executive Marcos Lutz said that the oil price decline and the depreciation of Brazil’s currency gives the group’s cane industry important efficiency gains with less expensive diesel and fertilizer costs and improved returns from sugar and ethanol exports. The Brazilian real has weakened against the dollar by 17pc since the start of 2020. In nominal terms, the real closed trading yesterday at its weakest ever at R4.72/$1.
The falling gasoline prices due to the coronavirus pandemic is helping to increase cane allocation for sugar production. Mills are expected to cut ethanol production by 8% in the new season, to 30.6 billion liters. With lower gasoline prices, ethanol should lose competitiveness at pumps to the oil-based fuel. It estimated reduced global demand for sugar due to the pandemic, but said it still expected the world’s 2019-20 supply balance at a deficit of 8.6 million tonnes.