Porto Alegre, October 10th, 2022 – Data for the second half of September must show an even stronger deceleration in the crush with heavy rain in the Center-South. In the annual comparison, sugar volumes show strong growth that must not be repeated from now on. The update of Unica’s biweekly report regarding production data for the first half of September basically showed two important vectors for the market. First, the seasonality of the period remains regular, with the harvest heading toward a negative slope in the production curve, with smaller volumes to be observed every week. Second, the domestic demand for hydrated ethanol must disappoint again, with a sales pattern of 1.30 bln liters, in case the level of sales in the first half of the month is repeated in the second half of September. Overall, apart from these two points, the report was quite typical, despite causing a price reversal in New York, which started to fall after Unica’s update.
Basically, the foreign market observed that, in the annual comparison, the sugar production of 2.86 mln tons in the first half of September was 12.19% higher than the 2.55 mln tons seen at the same time last year. Yet, SAFRAS & Mercado warns that this is not a one-way route, since in the margin, compared to the immediately preceding fortnight (the second of August), sugar production fell by 8.76%. If, on the one hand, the volume increased by more than 12% year over year, on the other, it ended up retreating almost 9% in the margin. Despite this, those who usually look at the market from the “half-empty glass” perspective, can argue that in the last fortnight the volumes of sugar production were only 5.80% higher YoY and that since then the annual comparison has advanced from 5.80% to 12.19%.
It is a valid argument, so much so that it dropped the March/23 contract in New York to -0.17% after the report update, and before that the gains had been above 1%. However, it is impossible to ignore that seasonally the crop is falling, with ever lower levels of production to be seen over the next fortnights. This also brings the concept of the delayed crop that the current 2022/23 season has as a characteristic, indicating that only now a more robust volume of production may be underway with some last units reinforcing their crushing pace. However, SAFRAS & Mercado warns that, even if this is true, it will also be a trend that will lose validity with the stoppage of milling activities in the Center-South in the second half of September, with the rain seen in the third and fourth weeks of the month, which must also persist (although at a lower volume) in the first week of October.
With this, SAFRAS & Mercado also draws special attention to the accumulation of strong vectors that must culminate in the intense deceleration of crush in the second half of September. First, the seasonal negative slope of the supply curve, with the crop approaching its end. Second, the effect of paralyzing activities that the rains of the second half of September have had on plants. It is also possible that these rains are an early start of the rainy season in the region, which, according to the calendar, begins in November, with the most recent forecasts pointing to precipitation until the first week of October. If this is confirmed, it will be increasingly difficult for production volumes to continue growing year on year from now on.
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