The World Sugar Surplus will Cut by Brazil in 2020?

The market experts by S&P Global Platts Analytics, have analyzed Brazil lowered its sugar production a few year ago, keep focusing to ethanol. Will this point lead to cutting the world sugar surplus from this 2020? And, why Brazil maintain the leading sugar exporter, and an advantage over competition in India and Thailand, despite ethanol is getting more focus.

In the last two years, Brazil has lowered its sugar production as the global sugar surplus capped international prices and as a supportive ethanol market paid higher premiums over raw sugar exports.

Bags of white sugar leave the warehouse. Source. Worldatlas

But after three years of the surplus weighing on prices, signs of a price recovery are on the horizon for the 2020-21 crop cycle.

Market analysts are raising sugar mix estimates for the next Center-South crop cycle starting in April 2020. S&P Global Platts Analytics expects the 2020-21 sugar mix in Center-South Brazil to reach 35.5% from 34.41% in the 2019-20 crop year. London-based trading house Sopex has moved up its estimated sugar mix for the 2020-21 crop to 37% from 34.1% for 2019-20.

The majority of market participants expect the volume of sugar cane crushed in 2020-21 to be similar to the nearly 595 million mt expected to be the final figure for 2019-20. “There is an upside trend in the cane crush [if] the weather proves to be favorable in the first quarter of 2020,” said Rodrigo Bermejo, trading intelligence specialist at Alvean, one of the world’s largest sugar-trading houses. Market estimates are pointing to the expected surplus for 2020-21 dropped 396,000 mtrv to just 124,000 mtrv.

This new fundamental picture has triggered the possibility of Brazil producing more sugar than initially estimated. An uptick seen in the NY11 sugar futures market — which has hovered over 13 cents/lb since December 4 — and the devaluation of the Brazilian real against the US dollar have added support.

If the NY11 sugar futures contract reaches 14 cents/lb, Brazilian and Thai producers are expected to fix future contracts to lock margins for a huge amount of sugar, leading to the futures contract melting as fast as it has been surging, and ethanol again could appear as the best option for the Center-South industry.

However, as the ethanol outlook for 2020 is also constructive and any devaluation of the Brazilian real against the US dollar could also mean a higher gasoline price and consequently move up the hydrous ethanol price celling.

Producers might favor the faster cash liquidity that ethanol offers, which has been key for many mills still facing financial constraints and counting on selling ethanol quickly to meet monthly payments. “We expect to be able to sell CBIOs just in the second half of 2020 and therefore we are not counting on it to decide our sugar mix,” an ethanol trader from a Sao Paulo-based mill said.

For 2020, the world sugar market might not be flooded by Brazilian sugar as any more volume could dramatically shift a sensible and well-stocked international market. And, Brazilian sugar producers maintain an advantage over competition in India and Thailand thanks to the ability to react to price movements in the international sugar market while extracting value from ethanol.