Sugar is 1.19% less profitable than ethanol in physical market in january


In January the price ratio between sugar with up to Icumsa 150 and the average between the prices of anhydrous and hydrated ethanol, in the Brazilian domestic market and using Ribeirão Preto as reference, had a sharp reduction in its downtrend for the commodity due to the high observed in the prices of sugar in the physical market, on the average of 5.64%, while anhydrous ethanol advanced 2.97% in the same period, and hydrated ethanol 2.00%, forming an average high of 2.48%.

In general, we have a pattern of disadvantage of sugar compared to ethanol, when they are all converted into reals per 50-kg bag in the standard of crystal sugar with up to Icumsa 150 since July last year, when a bag of crystal sugar was 4.50% below the average price of anhydrous and hydrated ethanol. In the following month, in August, the disadvantage grew to 7.55%. Since then the levels of lows, when strong, fluctuated between 6% and 4%, and when weak in the range of 1.8 to 1.6%. Therefore, the comparative data for January have been within patterns of minimum lows within this sugar disadvantage scale against hydrated ethanol since the middle of the previous year.

For February, we again have a trend of reduction in this disadvantage of sugar compared to ethanol. This observation is based on the high in the negotiation prices of sugar, which, still in the first week of February, went from the level of BRL 65.00 to 67.00 a bag for crystal with up to Icumsa 10 on the average of the interior of São Paulo. However, we cannot ignore the information that hydrated ethanol also rose in the same period, going from BRL 2.54 to 2.56, with mills trying to sell at BRL 2.60 without success thus far, since rains in the cane-producing regions of the Center-South are expected to delay the beginning of the premature start of next season in order to keep the market operating a little longer just with the existing stocks.

Therefore, it is likely that the short-term scenario has a moderate low in the price ratio converted into reals per 50-kg bag and crystal sugar with up to Icumsa 150 at the end of February, with sugar appreciating more intensely than hydrated ethanol, even though anhydrous ethanol has its limitations in keeping up with the gains of hydrated. From the perspective of the domestic market, in January, the average trading price of anhydrous ethanol hovered around BRL 2.40 per liter, while hydrated fluctuated by BRL 2.49 per liter, both in Ribeirão Preto region. These values converted into 50-kg bags are equivalent to BRL 71.97 and 77.92 respectively, which results in an average of BRL 74.95.

In the same period and in the same region, a 50-kg bag of crystal sugar with up to Icumsa 150 reached BRL 73.72. With this, the price disadvantage of white sugar against ethanol (average of anhydrous and hydrated ethanol prices traded in the same period and region) in the domestic market was 1.63% in January. The sugar disadvantage ended up falling 2.96% from the immediately previous month, when the commodity yielded 4.59% less than negotiations with the biofuel. In addition, when compared to January last year, we can observe a 16.37% increase in sugar over ethanol, since at the time the commodity generated 14.74% less than the biofuel.

SAFRAS & Mercado’s expectation was that in January the sugar disadvantage against ethanol would fluctuate by 4.12%. Thus, the estimate was 2.50% below the effective data for the period. For February SAFRAS & Mercado expects another disadvantage of sugar against ethanol in the Brazilian physical market, now at 1.19%, in line with the neutrality pattern we commented at the beginning of the text. These calculations take into account an average expectation of BRL 2.53 per liter for hydrated ethanol, BRL 2.42 for anhydrous ethanol, compared to a 50-kg bag of BRL 75.00. In the long-term historical average, since January 2008, sugar has a 30.64% advantage over ethanol. In the average of the 2019/20 crop, sugar has a disadvantage against ethanol of 2.24%. In 2019 sugar is clearly more profitable than ethanol by nearly 0.58%.