Sources said that sugar cane mills in Brazil are cancelling sugar export contracts, and shifting production to ethanol in an attempt to take advantage of high energy prices. This has raised concerns of the move sparking a shortage of sugar.
According to a trader at an international commodities merchant, almost every sugar company trading in Brazil had witnessed cancellations. The trader estimated that the cancellations could equate to between 200,000 to 400,000 tons of raw sugar.
He said that these cancellations were due to the change in production mix and also because of the crop delay.
Some traders were of the opinion that a shortfall in Brazil’s export of sugar could lead to a global shortage. During peak crop time, Brazil exports approximately 2.2 million tons of sugar per month.
Although most mills in Brazil are flexible, and can shift between sugar and ethanol production, currently the production is in favor of ethanol due to high energy prices caused by the war in Ukraine and post pandemic recovery demand.
Ethanol sales rise in Brazil
Biofuel sales are more profitable for mills, say sources, and analysts’ data show lower sugar production numbers and higher ethanol sales volume. In April alone, ethanol sales in Brazil rose by 2.6 percent.
These details were confirmed by another trader who did not wish to be named. He confirmed the cancellations, although he said most traders are attempting to be flexible while negotiating. He affirmed that there were cancellation costs involved for the mill, which could prove expensive.
According to an executive at one of the largest mills in Brazil, the gains from shifting from sugar production to ethanol production offset the costs of cancellations. After the US, Brazil is the second largest producer of ethanol in the world.
He also stated that payments for ethanol are usually cleared in one or two days, while realizing bills from the export of sugar takes much longer.
Hydrous ethanol was trading at the equivalent of a sugar price of 20 cents per pound late last week, while sugar futures in New York were trading a little over 19 cents per pound.
Last season mills used 45% of the sugarcane crop to make sugar and 55% to make ethanol. Every percentage point corresponds to around 700,000 tonnes of sugar.
According to data from sugar industry group UNICA, the lowest sugar mix was 34.3% in 2019, a year of low sugar prices. The highest was 49.7% in 2006, when higher prices prevailed.