Unica’s most recent report on the country’s production data during the second half of September reinforced the market reading that in the margin, compared to the immediately previous fortnight, we have a strong reduction in the cane harvest and production of derivatives. As a matter of fact, this is an expected seasonal movement, but it makes clear the real movement of reduction in the supply availability of the current market stage, and not the other way around, as the annual comparison reading suggests and that was widely highlighted, not by Unica, but by several journalists covering the industry.
One of the explanations for the strong growth levels over the year, such as cane harvest [+26%], production of sugar [+39%], of anhydrous [+23%], and of hydrated [+37%], was the rainfall from the same time of the previous year that reduced supply then, making that the recent data seem very high when compared to the previous season. The bottom line is not this “optical illusion” that the statistical load compared to the previous season brings, because those who really analyze and really “think” the market know how to identify and interpret that, but the diametrically opposite reading that the supply curve shows in the margin, with a real reduction in the supply of cane [-11%], of sugar [-11%], of anhydrous [-10%] and hydrated ethanol [-6%]. Another extremely important point that SAFRAS & Mercado warns about the latest report from Unica is the indication of consumption of ethanol stocks in the middle of September, a fact that has been far from media headlines, which were more “concerned” over gaining clicks by highlighting highs of 26% to 39% that were just statistical loads. In fact, the production of hydrated ethanol in the margin was the one that fell the least, reaching 1.57 billion liters in September. However, that was not enough to meet a demand of 1.92 billion liters in the same period. Thus, we surprisingly had a consumption of stocks of just over 350 million liters in September, when such stocks should still be in process of formation.
Having said that, we have the confirmation of a reading that SAFRAS & Mercado had already made available to its clients since August about the low intensity of the growth in stocks seen since the year start, placing current volumes below last year’s due to the short-term demand from mills, which until then were finding arbitrage premiums for hydrated ethanol in the physical market 20% to 29% above sugar in New York. With the recent rise in sugar and devaluation of the real against the dollar, these arbitrage premiums have obviously fallen, but to levels around 15%, not being a move that reduces that much the advantage in the sales of hydrated ethanol, which, as we have seen, has had a firm demand, close to 1.9 billion liters per month. Therefore, SAFRAS & Mercado sees as “explosive” the potential scenario of growth in ethanol prices in the coming few weeks in October and November, a trend that Unica’s latest data, albeit indirectly, reinforce but are far from newspaper headlines.
Back to the second half of September, in general, on a yearly basis, the cane harvest advanced 26.06%, sugar 39.15%, anhydrous ethanol 23.30%, and hydrated 37.18%. In the margin we have an opposite scenario, with cane falling 11.07%, sugar 11.76%, anhydrous 10.88%, and hydrated ethanol only 6.58%. Nevertheless, we have observed year gains in the quality of the raw material, with the TRS around 157.31 kg/ton of cane, 6.57% above 147.61 kg/ton seen at the same time in the previous crop, up 2.00% from the immediately preceding fortnight, when until then the yield of TRS fluctuated by 154.22 kg/ton. In addition, the TRS level of the second half of September was 5.09% above the average of the last five years for the same period, which currently fluctuates by 149.69 kg/ton. The average over the last five years rose 0.024% from 149.63 to current 149.69 kg/ton. Compared to the year average of 134.39 kg/ton, TRS in the second half of September was 17.06% above the accumulated data so far. The year’s accumulated average increased by 1.58% from 132.30 to 134.39 kg/ton.
The production mix for ethanol is even more concentrated on the biofuel, currently hovering around 65.88%, indicating a decrease of 1.04% from the same period of the previous year (66.92%), an increase of 0.98% over the previous fortnight, when the mix was 64.90% more focused on ethanol, and 0.41% below the accumulated average of the crop, which fluctuates by 65.47%. Sugar absorbs 34.53% on the average of the season, above the second half of September, which had a mix of 34.12%. With the expansion in the margin of the ethanol mix, the crop presents a surplus in the hydrated ethanol supply in the accumulated volume of the season [compared to the same time of the previous year] from +1.00% to +3.45% when we compare the current values of 17.54 billion liters with the 16.95 billion accumulated at the same time of the previous crop.
In line with this increase in the accumulated supply, domestic sales of hydrated ethanol hit 1.92 billion liters in the period, up 0.63% from the same time last year, with a demand volume of 1.91 billion liters and a 2.50% drop in the margin considering the consumption of 1.97 billion liters of the immediately previous month. The internal demand of anhydrous ethanol in the Center-South hit 735 million liters, with a high of 10.83% year over year compared to the demand of 663 million liters in September last year, but with decrease of 9.92% in the margin from 816 million liters in the previous month. Looking more closely, we can observe that in the second half of September the crush volume reached 35.08 million tons of cane. The current biweekly volume is 5.96% above the five-year average for the same period, which fluctuates by 37.31 million tons. Looking at the sugar supply, we observe a production of 1.79 million tons of the commodity.
The current biweekly volume is 20.62% below the average of the last five seasons for the same period, which oscillates by 2.26 million tons. In the accumulated season, cane crush reached 472 million tons, up 1.96% from 463 million tons processed in the average of the last five crops for the same period. In turn, the accumulated sugar production fluctuates by 21.00 million tons, down 12.50% from the 24.91 million tons of the average of the last five seasons. In terms of cane productivity, the most recent data we still have for August show a rate of 76.05 tons per hectare, up 8.64% from 70.00 tons observed in the same fortnight of the previous year. In the margin we can see a 6.43% drop from 81.28 tons per hectare in July, as well as a 1.99% decline from the 3-year average for the same period, which points to a yield of 74.56 tons per hectare for this time of year. August data are also 8.76% below the year’s cumulative average of 83.55 tons per hectare.