A predominant scenario in March was the acceleration of the harvest of the 2020/21 season, which started in February, with the harvest volume growing stronger due to a favorable climate. In its most recent report published last Tuesday (15), Unica exposed data that showed two very important movements for both the sugar and ethanol markets: the strengthening of the movement of bringing the harvest forward and sharp decline in the ethanol demand, both from a short-term perspective.
Textually, the comments in the report, discarding statistical descriptions, reinforce concerns over the need for aid measures (credit) for the storage of ethanol to be produced in the next two weeks amid weak gasoline and oil prices on the international market, which must limit the competitiveness levels of the biofuel and, consequently, profitability standards of mills.
The situation becomes even more critical in the face of two facts: the first is the high level of almost ‘mandatory’ concentration of the production mix in favor of ethanol at the beginning of the season. For reasons of TRS concentration and quality, cane at the beginning of the season is more profitable to hydrated ethanol, which leaves mills in a checkmate in the short term because of such low prices of the biofuel along with the trend of increasing supply of the same. The solution is storage. The problem is that this solution also demands operational costs for ‘loading’ such stocks. In the first half of February, when the movement of bringing forward the new 2020/21 season started, the mix (share from cane production) was at 100% for ethanol. In the second half of the same month, the mix was at 86% and now, with the most recent data, at 72%. The second fact is the most recent decline in gasoline by 8%, indicated by Petrobras.
Even in a strong downward movement, the levels are still clearly high, especially when SAFRAS & Mercado expects that the general average of the season must be 48% for sugar and 52% for ethanol. Still within the subject of estimates, SAFRAS & Mercado expects a supply of 600 million tons of sugarcane to the Center-South during the 2020/21 crop together with a production of 34 million tons of sugar. Returning to the Unica’s report, looking at ethanol, we observe a significant decline in the sales of the biofuel, which hit 1.37 billion liters, down 26% from the crop’s average, which fluctuates by 1.86 billion liters. In the margin, March sales fell by 11%, while year over year the decrease was even sharper, at 18%.
It is interesting to note the statistical load of the decline in March, which made the year’s average fall by 2.33% between February and March, changing from 1.90 to 1.86 billion liters. Compared to the 5-year historical average for the same period, we observe a 7.25% decline in hydrated ethanol sales in March. The 5-year average itself fell by 1.89% between February and March, following the negative tone of the most recent volumes. The production of anhydrous ethanol at the end of the crop was 439 million liters, and that of hydrated ethanol, 1.18 billion. These are still small volumes compared to the monthly consumption patterns of the Center-South, with corn ethanol still facing a long way to consolidate itself as a solid and significant pattern of supply.