In October the price ratio between sugar with up to Icumsa 150 and the average between anhydrous and hydrated ethanol prices, both charged in the Brazilian domestic market and based on Ribeirão Preto, signaled with greater intensity its trend of neutralization of the disadvantage of sugar against ethanol. This stemmed from more significant advances in the sales of crystal sugar with up to Icumsa 150 compared to hydrated and anhydrous ethanol in the same period.
In general we have a pattern of disadvantage of sugar against ethanol when converting them all into reals per 50-kilogram bags in the pattern of crystal sugar with up to Icumsa 150 since July this year, when a crystal sugar bag was 4.50% below the average price of anhydrous and hydrated ethanol. In August this scenario was deepened with the disadvantage going to 7.55%. In September we had an important decompression of this movement, with a sugar bag getting only 4.24% below the average price of anhydrous and hydrated ethanol in the same period.
However, in October, a new movement of gains in crystal sugar with up to Icumsa 150 eventually overlapped the commodity with the advances of hydrated ethanol, which, even on the rise in the same period, ended up not sustaining to a great extent the commodity’s advantage over biofuel. Overall, we had a month of October when sugar demand was firmer with the need for stock preparation by processing industries with extra year-end demand. On the other hand, mills ended up focusing more on hydrated ethanol production with the aim of also meeting strong demand from final consumers.
The point is that, converted into reals per 50-kilogram bag, considering crystal sugar with up to Icumsa 150, anhydrous and hydrated had an average gain of 3.84%, while crystal sugar itself with up to Icumsa 150 had a high of 6.50% in the same period, which resulted in this shortening of the negative distance from crystal to ethanol.
The detail is that both anhydrous and hydrated ethanol had significant new gains in November, along with stability for crystal sugar with up to Icumsa 150, all traded in the physical market, which may cause a new deepening of the disadvantage of sugar against ethanol again at even more negative levels even compared to July, the beginning of the movement. In November we observe hydrated ethanol trading on average at BRL 2.30 in Ribeirão Preto, against BRL 2.20 in the same region in October. Anhydrous ethanol must change from BRL 2.09 to 2.15 in the same location in the same time period. Sugar tends to remain steady at its already known level of BRL 65.00 a 50-kilogram bag, which justifies this whole scenario already set by SAFRAS & Mercado.
From the perspective of the domestic market, in October, the average price of anhydrous ethanol hit BRL 2.09 a liter, while hydrated fluctuated around BRL 2.20 a liter, both in Ribeirão Preto region. These values converted into 50-kilogram bags correspond respectively to BRL 62.64 and 68.82, which result in an average of BRL 65.73.
In this same period and in this same region, a 50-kilogram bag of crystal sugar, with up to Icumsa 150, averaged out at BRL 65.52. As a result, the price disadvantage of white sugar over ethanol [average of anhydrous and hydrated prices traded in the same period and region] traded in the domestic market was 1.83% in October. The sugar disadvantage fell 2.41% from the previous month, when the commodity paid 4.24% less than the biofuel. Moreover, when compared to October last year, we can see an 0.66% disadvantage of sugar over ethanol, when sugar yielded 2.49% less than the biofuel.
SAFRAS & Mercado’s expectation was that in October the disadvantage of sugar over ethanol would oscillate around 0.34%. As a result, the estimate was 1.49% below the effective data for the period. For November SAFRAS & Mercado expects a new and deeper disadvantage of sugar over ethanol in the Brazilian physical market of 6.81%, in line with the pattern of deepening disadvantage that we commented at the beginning of the text.
These calculations take into account an average expectation of BRL 2.30 per liter for hydrated ethanol, BRL 2.25 for anhydrous ethanol, and BRL 65.00 for a 50-kilogram bag. In the long-term historical average since January 2008, sugar has a 31.38% advantage over ethanol. In the average of the 2019/20 season the commodity has a disadvantage of sugar over ethanol oscillating around 1.44%. In 2019 sugar has been clearly more profitable than ethanol, at around 1.98% to date.