Sugar advances strongly in the physical market in January

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The most recent data on monthly average prices for crystal sugar with up to Icumsa 150 practiced in the Brazilian physical market, in the middle of the interior of São Paulo, show strong growth in the negotiations of this product. On the one hand, one of the first arguments to justify the advances is the presence of the cane off-season in the Center-South that is at its peak. Having started in December 2020, it must extend until April. However, the crop only gains volume and intensity between May and June. Thus, there is still ample room for advances in prices. For the first months of the first half of the year, SAFRAS & Mercado expects that prices will be supported above BRL 103.00 a bag for crystal sugar and with the possibility of new advances even to BRL 112.00 a bag.

This must occur in view of the strong movement of future sales with VHP for exports by Brazilian mills. Out of the total 34 million tons planned for exports during the new crop of 2021/22, until early January there were already 22 million committed in future sales. In the previous year, the record of 12 million in futures sales had been at the end of February. This year, at the beginning of January, commitments already hit 22 million tons. Another issue that must keep crystal sugar prices supported is the recovery of the domestic demand for hydrated ethanol as of the second half of 2021. Be from VHP exports or the recovery in the hydrated ethanol demand, crystal sugar must have low availability and prices supported in 2021.

Until December 31, 2020, with the most recent data, total sugar stocks in Brazil reached 10.70 million tons, out of which 4.10 million were crystal with Icumsa 0 to 180. This volume of stored crystal sugar is 5.22% below the 4.33 million tons seen until the end of the immediately previous month and 12.83% above the same time in the previous year, when 3.63 million tons were stored.

Analyzing the historical comparison with deflated data, we observe that, in January, the average trading price of a 50-kg bag of sugar with up to Icumsa 150 based in Ribeirão Preto was BRL 105.62. In comparison with the same month of the previous year, there was an increase of 35.64% compared to the average of BRL 77.87 per bag. Despite strong annual gains, in the margin, there was a devaluation of 8.07%, when compared to the BRL 114.89 trading average observed in December 2020. Expanding the analysis, we see that the average price of January this year is 24.77% above the average price for this period during the last five years, already deflated, which currently fluctuates around BRL 84.65.

In the previous month, current prices had been 28.32% above the average of the last five years for the period, which until then fluctuated by BRL 89.54. As a result, the average price of the last five years between December and January showed a devaluation of 5.46%, in sharp contrast to the advance observed in the annual comparison, in which current prices showed very significant gains of almost 36%. So, we can interpret that there were divergent movements between the current price line and its historical average. For January, SAFRAS & Mercado expected prices of around BRL 108.00, which was 2.26% above the effective average price of BRL 105.623 for the period. For February, SAFRAS & Mercado expects average prices of around BRL 104.00, which must mean an increase of 26% YoY, a 1.5% decrease in the margin, and a 29% increase over the average price of the last five years for the same period.