Porto Alegre, September 06, 2021 – Despite strong advances in the short term, with gains of more than 8% in the margin, prices stabilized at the end of the month, showing a saturated buying force in the short term. The physical sugar market for crystal sugar with up to Icumsa 150, on the average of the interior of São Paulo, had an August marked by the sharpest highs of the year, even when compared to the deflated prices of 2020. The significant gains, seen mainly in the annual comparison, showed the effects of the production losses of the current crop in Brazil’s Center-South, causing a rapid increase within the eighth month of the year, which was the period of effective pricing of the damage caused by the three frost events in July. SAFRAS & Mercado had already warned in a previous report about the high probability of price volatility. However, the rise was so sharp that it even surpassed the observed models.
For September, SAFRAS & Mercado expects saturation of buying force because of such high prices in the short term. Moreover, anticipating higher prices ahead, many industries had already set their operations in July, still during the frost events. At that time, physical prices had not yet had the significant gains they would only have in August when the initial numbers for the current crop losses were known. This explains the high volatility of the market, which was based only on isolated volumes, mostly aimed at the replenishment of short-term stocks. At the other end, we have mills that are already strongly focused on building stocks for the next off-season, which must start 30 to 60 days earlier than normal.
In this sense, the reduced supply in the spot market must keep prices supported at the recent mark of BRL 135.00 per 50 kg bag of crystal sugar with up to Icumsa 150 on the average for the interior of São Paulo seen at the end of August. Only at the end of October industries would need a massive return to the market, creating a scenario of high consumption of carryover stocks and justifying new gains towards the level of BRL 140.00
In this context, analyzing the historical comparison with already deflated data, we observe that, in August, the average trading price of a 50-kg bag of sugar with up to Icumsa 150 based in Ribeirão Preto was BRL 125.65. In comparison with the same month of the previous year, there was an increase of 48.95% over the average of BRL 84.36 per bag, already deflated. Despite strong annual gains, in the margin there was a moderate appreciation of 8.26% over the average of BRL 116.06 observed in August 2021. Expanding the analysis scope, we see that the average price in August this year is 72.52% above the average price for this period over the last five years, already deflated, which currently hovers around BRL 72.83.
In the previous month, current prices had been 48.64% above the five-year average for the period that, until then, fluctuated by BRL 78.00. As a result, the average price of the last five years between July and August showed a devaluation of 0.10%, in sharp contrast to the decline observed in the margin when current prices rose by 8.26%. With this, we can interpret that there was an increase in the positive distance between the current price level and its historical average due to the increase in the current price level.
For the month of August, SAFRAS & Mercado had predicted prices around BRL 118.00, down 6.09% from the effective average price of BRL 125.65 for the period. For the month of September, SAFRAS & Mercado expects prices to be around BRL 135.00, which would mean an annual increase of 48%, an advance of 7% in the margin, and a 77% high from the five-year average price for the same period.