In May the physical sugar market was marked by slight deceleration of the trading averages of crystal sugar with up to Icumsa 150 in the interior of São Paulo. The market posted lows that were not as intense as those of ethanol, with relative support of the lows in the period within a price range already expected by the sector and forecast by SAFRAS & Mercado still in April.
The deceleration of purchases in May occurred due to the effects of the social distancing measures that kept many companies with reduced activities. Moreover, it is usual that buyers act more aggressively in the market from June, when the new crop is already more directed to its peak in the supply curve. Still in the months of May and April, the market has a very slow season start, and production units usually focus on ethanol, leaving VHP sugar as the second option, and the production of crystal sugar with up to Icumsa 150 as the third option.
The atypical nature of the current 2020/21 season only caused the order of the first and second positions to be reversed, with the production of VHP coming to the first position, surpassing hydrated ethanol, while crystal sugar remained as the third option. This supply issue also allowed support to stay comfortably above the level of BRL 70.00 even with the reduction of buying interest. On the other hand, in June, the market is already more demanded, with industries facing the need to renew and expand supply contracts within a seasonal period that, in theory, guarantees more availability of supply, with its curve already being directed to higher levels of production.
It is important to remember that the market for VHP is still very heated in the short term. From the beginning to the end of May, the premiums for this kind of product at the port of Santos, for immediate shipment, increased from +10 to +28 points, with mills more focused on the fulfillment of export contracts set in February rather than on production for new sales. This scenario reinforces that crystal sugar still faces strong competition with VHP sugar in the short to medium-term demand, making the prices of the former show support from the recent upward movement that, between May and June, raised the level of prices from BRL 74.00 to the range of BRL 76.00 to 77.00.
In this context, in May, the average trading price of a 50-kg bag of sugar with up to Icumsa 150 in Ribeirão Preto was BRL 74.67. In comparison with the same month of the previous year, there was an increase of 9.07% over the average of BRL 68.45 per bag. This was an increase clearly below the standards of the last three months, which had fluctuated between 13% and 16%. It was also below the year’s average, which has fluctuated close to 12.11%. Between April and May, this average annual gain fell slightly from 12.87% to current 12.11%. Well below the gains in the annual comparison, in the margin there was a devaluation by 3.22% when compared with the trading average of BRL 77.15 in April 2020. The 3.22% decrease in the margin in May was even more intense than the decline in the margin seen in April, which was 1.58%. Expanding the analysis scope, we can see that the average price of May this year is 6.87% above the average price for this period during the last five years, which is currently around BRL 69.86.
In the previous month, current prices had been 10.58% above the average of the last five years for the period, which until then fluctuated by BRL 69.77. As a result, the average price of the last five years between April and May showed an appreciation of 0.13%, in sharp contrast to the decrease observed in the annual comparison, in which current prices showed relatively significant gains of just over 9%. Thus, we can interpret that there was a convergent behavior but of different proportions between the price level and its historical average for the period, with the former dropping 3.22% in the margin and the latter advancing 0.13% in the short term. For May, SAFRAS & Mercado’s expectation was for prices around BRL 74.00, which was 0.89% below the effective average price of BRL 74.67 for the period. For the month of June, SAFRAS & Mercado expects prices to be around BRL 76.00, which must mean an annual increase of 21.60%, a decrease of 1.79% in the margin, and an increase of 16.55% over the average price of the last five years for the same period.