Oct 19, 2010
Sugar More Profitable than Ethanol for Brazilian Sugar Mills
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
At the start of the season, sugarcane producers in Brazil had been expecting an increase in sugarcane production for the 2010/11 season, but an extended dry season has reduced tonnage and expectations now are that the crop will be 3.5% less than last year. After nearly five months of dry weather, rains returned to southeastern Brazil during the month of September, but the damage had already been done.
The sugarcane harvest in Brazil usually starts in early April and ends in early December, but it is expected to end earlier than normal this year. In the state of Sao Paulo, the largest sugarcane producing state in Brazil, eight sugar mills have already shut down for the season (two months earlier than normal) and more are expected to shut down in November.
Since most new sugar mills in Brazil produce both sugar and ethanol, mill operators can adjust the process to produce more of one product and less of another depending on the price of the products. Sugar prices continue to strengthen and a 50 kilogram sack of sugar sold for an average of R$ 57.19 in Sao Paulo during the month of September. This was 15% more than the price in August and 22% more than in July. Currently, sugar is more profitable to produce than ethanol and as a result, mill operators are opting to produce a little more sugar than they would normally.
If a mill in Sao Paulo only produced sugar, the operator could afford to pay the sugarcane producer R$ 58.55 per ton of sugarcane. If the mill only produced ethanol, the operator could afford to pay the producer R$ 42.80 per ton of sugarcane. The average price in Sao Paulo for a ton of sugarcane during the month of September was R$ 50.20.
In anticipation of tight ethanol supplies during the intra-harvest period (December through March), ethanol prices in Brazil have already started to increase. Wholesale prices of ethanol have increased 7% since August and they are already 13% higher than last year at this time. In much of Brazil, consumers are already reducing their ethanol purchases preferring to use gasoline in their flex fuel vehicles.
There continues to be very long lines of vessels waiting to load sugar out of the Port of Santos. Logistical bottlenecks and rainfall along the coast continue to cause problems for exporters.