Brazilian plants pause sugar export contracts to focus on ethanol

According to sources in this industry, Brazilian sugar mills are canceling some sugar export contracts and shifting production to ethanol to cash in on high energy prices, raising concerns about an eventual sugar shortage.

Almost all companies involved in this market in Brazil have seen sugar export contract cancellations, said a trader to Reuters last week during Sugar Week in New York. He calculated that 200,000 to 400,000 tonnes of raw sugar shipments had been canceled up until that point.

“That is likely happening because of the change in the production mix added to the harvest delay,” the trader said.

Brazil exports around 2.2 million tonnes of sugar per month during the peak of the harvest. Therefore, a significant drop in sugar production could lead to a global sugar shortage, say some traders.

Most mills in Brazil are flexible and can partially shift their production to either sugar or ethanol. At the moment, production is going in favor of ethanol, as high energy prices and the war in Ukraine spur more fuel production.

Recent projections show lower sugar production figures and higher ethanol volumes as biofuel sales have become more profitable for mills. Ethanol sales increased 2.6% in April.

A second trader, who also works for a large international food retailer, confirmed the cancellations – known in the industry as “washouts” – and said most traders are trying to be flexible. “In take-or-pay contracts, there’s a fee, so sometimes the cost can be high for the mill,” he said.

An executive at one of Brazil’s biggest mills, who asked not to be named, said the gains from switching from sugar to ethanol outweighed the costs of cancellations. Brazil is the second-largest producer of ethanol after the United States.

“Ethanol sales are paid in one or two days, while sugar exports take much longer, and mills have many bills to pay at the beginning of the harvest,” he said.

See below the track record of sugar exports from Brazil in the period from January 2021 to March 2022. The data is from DataLiner.

Brazilian Sugar Exports | Jan 2021 – March 2022 | WTMT

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Source: DataLiner (click here to request a demo)

The mills used 45% of the sugarcane harvest to make sugar and 55% ethanol in the previous harvest. Each percentage point is equivalent to 700,000 tonnes of sugar.

According to the Sugarcane Industry Association (Unica) data, the lowest sugar mix was 34.3% in 2019, a year of low sugar prices. Conversely, the highest was 49.7% in 2006 when higher prices prevailed.

Source: Diário do Comércio

To read the full original article, please go to:

https://diariodocomercio.com.br/agronegocio/usinas-brasileiras-cancelam-contratos-de-exportacao-de-acucar-e-transferem-producao-para-etanol/

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