February 22, 2012

Sugarcane Producers in Brazil Hope for 7% Higher Production

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

After a disastrous sugarcane harvest in 2011/12, producers in southern Brazil are hoping for a rebound in sugarcane production in 2012/13. Officials from the Union of Sugarcane Industries (Unica), which represents about 90% of the sugarcane produced in Brazil, are expecting a 7% improvement in sugarcane production in southern Brazil in 2012/13. This would certainly be welcomed after sugarcane production fell 15% in 2011/12 due to poor weather and a lack of investments in the renovation of existing sugarcane fields.

One of the reasons for their optimism is the fact that in 2012/13 the first cutting of sugarcane will represent a larger percentage of the crop than during the last few years. The first cutting is more productive so a higher percentage of first cutting usually translates to increased tonnage. For the upcoming harvest, which will start in April, the first cutting is expected to increase 40% and represent approximately 16% of the total harvest. Producers are also optimistic because the weather thus far this growing season has generally been favorable for sugarcane development.

As a result, the average tonnage in southern Brazil is expected to increase 4 to 5 tons per hectare compared to the last harvest. The average tonnage last year was only 70 tons per hectare, which was one of the worst on record compared to the historic average of 84 tons per hectare.

Processors are anxious to increase the sugarcane production as quickly as possible because they are running their mills at 160 million tons below capacity and they have been pressing the federal government to put more resources into the sugar/ethanol sector. The government has responded by developing a program with the National Development Bank where R$4 billion reals have been devoted to just the renovation of existing sugarcane fields. Critics complain that the majority of these low interest loans are being devoted to the largest producers leaving the smaller producers still short of credit.

In northern Sao Paulo, it is estimated that 12 to 13% of the existing sugarcane fields will be renovated in 2012, which is barely enough to keep the overall production steady and certainly not enough to increase the production as much as what the industry wants. Unica officials feel this type of credit program would need to be repeated for several years before the production would be increased enough to occupy the surplus capacity in the industry.