April 28, 2014
Brazil's 2014/15 Sugarcane Harvest off to a Slow Start
The 2014/15 sugarcane harvest in Brazil has been slow to get started. As of April 14th, 147 sugar mills in Brazil had started processing sugarcane compared to 155 last year at this time. Even though processing has started, no ethanol distributor has yet to receive new shipments of ethanol from the new harvest. As a result, anhydrous ethanol (this is the ethanol mixed with gasoline) prices have risen 15% over the last two weeks due to the short supply. The demand for ethanol also increased recently due to heavy travel during the Easter holiday.
The slower than normal start is being partly attributed to wet weather earlier in April which kept harvesting machines out of the field. As the weather dries out with the onset of the dry season in Brazil, the harvest activity is expected to increase.
The Union of Sugarcane Industries (Unica) estimates that mills in southern Brazil will process 580 million tons of sugarcane. If verified, it would be approximately 17 million tons less than the 2013/14 harvest. The sugarcane acreage in Brazil actually increased 5% over last year, but dry weather during December and January reduced the estimated production by 8%. Unica estimates that 56.4% of the sugarcane will be used to produce ethanol compared to 54.7% last harvest season. Sugar production should decline 5% in 2014/15 to 34.3 million tons.
The sugarcane harvest season in southern Brazil officially starts on April 1st and runs through the end of December. Sugarcane is generally not harvested in January, February, and March due to wet fields limiting mechanical harvesting.
Before the onset of hot and dry weather during December and January, estimates for the 2013/14 harvest were as high as 630 million tons, but with the drop in production, it looks like 2013/14 will be another in a string of disappointing sugar harvests in Brazil.
Another reason for the disappointing harvest is the lack of investments in renovating Brazil's sugarcane. Once sugarcane is planted, it can be harvested for 5-6 years before the productivity starts declining by 10% per year. To keep the sugarcane from getting too old, 16% to 20% of the sugarcane needs to be renovated every year. Unica estimates that 18% of the sugarcane was renovated last year, but that fell to 14% this year, which means the average age of the sugarcane in Brazil increased this year.
Renovation of a sugarcane field is an expensive proposition involving tearing up the old crop and replanting it with newer sugarcane varieties. In addition to the added expense of fertilizers, chemicals, and labor, the renovated sugarcane does not generate any income for the first year. In recent years sugarcane producers have been limiting their renovation efforts due to low sugarcane prices and a lack of affordable credit to do the renovation.
The Brazilian government recognized this as a problem for the sugarcane sector and established a program of low interest loans specifically designated for renovation. While this program has helped, it has not been enough to stimulate a more aggressive renovation schedule.