BRASÍLIA: Sugar production in Brazil’s key Centre South region will drop to a three-year low next season as a dearth of replanting takes its toll on cane yields, and with ethanol raising its take of the harvest. Kingsman pegged sugar output in the Centre South, which is responsible for more than 90% of output in the top producing country, at 33.99m tonnes for 2018-19, on an April-to-March basis. Sugar output at that level would represent a fall of 2.1m tonnes year on year, and would be the lowest since the 31.22m tonnes produced in 2015-16. The decline would represent a double whammy of a lower cane crush, seen dropping to a four-year low of 575.0m tonnes, and a lower proportion of cane being processed into sugar rather than ethanol. Cane harvest hopes have been cut by lower rates of crop renovation, and so an increase to some 3.8-4.0 years in the average age of crop next season, a factor which “will lead to lower agricultural yields”. “Moreover the current dry conditions have most probably hit yields too, and therefore we see the cane crush falling to some 575m tonnes,” said Kingsman, part of the S&P Global Platts empire.
Meanwhile, the proportion of cane diverted to sugar will drop by 1.3 points to 46.3%, assuming current price incentives in favour of ethanol remain. “The current situation of domestic ethanol paying better than sugar – including along the forward curve – a stronger real against the dollar, and the new duty on ethanol will play in ethanol’s favour,” the group said. A stronger real tends to mitigate against production of sugar, as the sweetener is destined largely for export, with ethanol also gaining in favour thanks to the imposition by Brazil of a 20% tariff on imports of US ethanol above a 600-litre quota. Indeed, Kingsman also trimmed by 30,000 tonnes to 36.14m tonnes its forecast for Centre South sugar output this season, citing the prospect of more cane going to make ethanol than previously expected. Besides the improved economics of making the biofuel, with the biofuel having “paid better than sugar for about a month and a half”, the group also flagged the prospect of the onset of the rainy season next month. Extra rainfall would bring a lower sugar level in cane and “more ethanol production as logistically it is easier to produce ethanol than sugar when it is raining”.