May 28, 2014
Fewer Sugar Mills Operating in Brazil compared to Last Year
The Union of Sugarcane Industries (Unica) indicated that the number of operating sugar mills in Brazil thus far during the 2014/15 harvest season is less than during the same period in 2013. Up until May 16th, 249 sugar mills in Brazil had started to process the 2014/15 sugarcane crop compared to 268 mills in operation at this time last May. Sugarcane processing generally starts in April, but 29 mills delayed the start of their processing until the first half of May.
The lower number of working mills is due to a combination of factors including: low sugar and ethanol prices, a drought during December and January that reduced sugarcane production, and the delicate financial situation of many of the smaller sugar mills.
Unica reported that up until May 16th there has been 79.3 million tons of sugarcane processed in southern Brazil, which is 3.4% less than during the same period last year (82.1 million tons). Sugar production during the period totaled 3.4 million tons or down 9.8% from a year earlier and ethanol production was down 1.7% to 3.22 billion liters.
While sugarcane producers in the state of Sao Paulo are looking at very tight margins, the situation is even worse in the neighboring state of Mato Grosso do Sul. In a recent study released by the Agriculture and Livestock Federation of Mato Grosso do Sul (Famasul), they estimate that it costs 11.5% more to produce a kilogram of total recoverable sugars in the state compared to the neighboring state of Sao Paulo.
All new sugarcane production in the state is the result of the conversion of pastureland to sugarcane production. The soils in Mato Grosso do Sul are not as fertile as they are in Sao Paulo so producers have increased expenditures for fertilizer and agricultural lime during the planting process. Producers in the state also pay higher prices for inputs such as chemicals and equipment and they pay higher taxes compared to Sao Paulo in addition to having to pay for road maintenance.
Climatic factors also contributed to higher production costs in the state especially during the 2013/14 growing season. Irregular rains and a series of frosts during 2013 are estimated to have cost producers R$ 14.80 per ton of sugarcane and R$ 1,202.00 per hectare.
The higher costs and lack of profit potential act as a deterrent to investing in more sugarcane production in the state. A similar story is also being told by sugarcane producers in other Brazilian states as well. Sugarcane producers in Sao Paulo have the advantage of a developed infrastructure and lower production costs and even with those advantages, the producers in that state are looking at razor thin margins or no margins at all.