Sugar advances 0.5% YoY in physical market in September

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The physical sugar market had a month of September marked by relative stability in trading prices over the period, when, between lows and highs, prices eventually increased from BRL 59.00 to 62.00, with clear shift towards the level of BRL 63.00. The strengthening of the price line at the end of the month reflects a reading already predicted by SAFRAS & Mercado about the increase in demand from processing industries as of October. This seasonal increase in demand is directly related to the period prior to Christmas, New Year and Carnival celebrations, when consumption of foods with higher sugar content grows. Given the logistic and operating process of distribution and preparation, it is usually in October that industries enter the market with more intensity.

In this sense, the reduction in the supply curve of the 2019/20 crop in the Center-South, with its clear negative growth level in biweekly production data, tends to further reinforce the upward trend in prices during the fourth quarter of 2019. Moreover, it is important to keep in projections the possibility of losses of 2 million tons of cane in the current crop due to the early July frost that reached an area of ​​400 thousand hectares between northern Paraná and southern São Paulo, reducing average yield in this region by 5 tons per hectare, also resulting in changes in crop management by producing units. It is also evident that the first signs of this unplanned reduction of 2 million tons in the current crop must result in an earlier than normal end of crush in some production units, already announcing the closure of activities for the first half of October.

In this context, in September, the average trading price of a 50-kg bag of sugar with up to Icumsa 150 in Ribeirão Preto hit BRL 60.59. Compared to the same month of the previous year, there was an increase of 0.59% over the average of BRL 60.24 per bag. This was a growth well below the 0.59% increase observed in the immediately previous month. In contrast to YoY gains, in the margin there was an appreciation of 2.37% when compared to the average of BRL 59.19 observed in August. Broadening the perspective of analysis, we see that the average price of September this year was 2.07% below the average price for this period over the last five years, which is currently fluctuates around BRL 61.87.

In the previous month current prices had been 0.52% below the average of the last five years for the period, which until then fluctuated by BRL 59.50. As a result, the average price of the last five years between August and September went up by 3.99%, more intense than the advance observed in the monthly comparison, with current prices showing gains of 2.37% in the margin. So, we can interpret that the September current price level ended up having a less intense positive evolution than that of the 5-year average, with the latter having approached the current price level. For September SAFRAS & Mercado expected prices around BRL 61.00, which stood 1.61% below the effective average price of the period, of BRL 62.00, which was only effective in the last week of the month. For the month of October, SAFRAS & Mercado expects prices around BRL 63.00, which must mean a 1.11% drop YoY, a 3.98% rise in the margin, and a 3.89% decline from the average price of the last five years for the same period.