Porto Alegre, June 19th, 2023 – The most recent cane crushing data for the Center-South, released by the Sugarcane Industry Association (Unica) for the second half of May, brought a slight surprise about the intensity of the production pace. Although gains in the margin (compared to the previous fortnight) were observed, they were exponentially less intense than those that occurred in the first half of the month. The great detail is that the second half of May was not marked by rain in cane plantations in the Center-South that could justify such a move. The rain registered in producing regions occurred in the transition week between May and June and should now occur in the second and third weeks of this month.
In the textual part of Unica’s report, there is the traditional focus on the annual comparison without mentioning this level of negative growth between the first and second halves of May. However, there is an important analysis on the possibility of a crop of 600 mln tons of cane for the 2023/24 season, together with the need to either boost the crush in December this year or start the 2024/25 season sooner, in March. However, SAFRAS & Mercado draws special attention to two points related to this indication by Unica. First, if a volume of 600 mln tons is confirmed (which we are not saying, as our estimate is 576 mln tons) in fact, the prolongation of crushing until the end of December will be necessary while the earlier-than-normal start of the crop by the end of February will also be useful for occasional cane processing.
Second, in all seasons at least 5 to 10 mills already start crushing activities in the second half of February. The difference would be the number of such mills. A third point not addressed by Unica is how much cane is used in the subsequent crop, which can vary from 30 to 50 mln tons, a feasible volume considering that only 260 mills are operating in the current crop, against a total number of 430 mills installed in the country. SAFRAS & Mercado warns that the drought observed between April and August last year will prevent such a robust recovery of the current crop, with advance only up to 576 mln tons of cane.
Going back to Unica’s data, in terms of cane crushing, between the first and second halves of May, the level of growth in the margin plummeted from 108% to 4.52%. For sugar, the deceleration in the same comparison went from 154% to 14%. For anhydrous ethanol, the deceleration of growth in the margin went from 137% to 9%, and for hydrated ethanol from 72% to 8%. So, how does the region intend to process 600 mln tons of cane this season with such low growth levels in a period when there was no rain to disrupt the crushing? Furthermore, we cannot forget that June already has three rainfall events on cane fields, probably leading this weak growth in the second half of May to retreat in the first half of June in the margin comparison.
Regarding ethanol, we have positive signs of a reaction in sales. Starting with anhydrous ethanol, with a demand of 1.04 bln liters per month, which rose 23% YoY and 25% in the margin. SAFRAS & Mercado expected May sales at 1.01 bln liters, with the effective volumes for the month proving to be 2.4% higher than our estimate. In turn, hydrated ethanol, with sales of 1.41 bln liters a month, increased by 0.90% YoY but 26% in the margin. In the previous month, SAFRAS & Mercado had estimated hydrated ethanol sales in May at around 1.14 bln liters, with the current volumes being 23% higher than the effective data for the period. This new pattern of hydrated ethanol sales, very close to the level of 1.5 bln liters a month, will likely heat the physical market again and motivate price gains already sustained by the expected rain over the Center-South in the second and third weeks of June.
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