Porto Alegre, October 11th, 2021 – The physical sugar market for crystal sugar with up to Icumsa 150, on the average of the interior of São Paulo, had a month of September marked by the intensification of bullish movements for the commodity. The key reason for these higher-than-expected earnings is the off-season, which must be longer. Since the end of last May, SAFRAS & Mercado has warned about the accelerated end of the harvest of the current 2021/22 season in the Center-South, which would culminate with the end of production activities by 30 to 60 days before the official calendar. Moreover, many mills have focused on building stocks for this off-season, which must start soon in October.
This explains the sharp rise in prices to levels above BRL 140 per bag on the average of the interior of São Paulo in September. Such levels were expected for October onward. Besides the longer off-season, mills have begun to reduce supply in the physical market earlier than usual and reallocate excess stocks. Although in September the average of crystal sugar with Icumsa 150 fluctuated around BRL 140.00 per bag, for October the expectation is BRL 143.00. It is interesting to note the level of deceleration of earnings in the short term, which denotes a clear saturation of the upward movement.
If from August to September sugar prices increased by more than 11% in the margin, the same must not happen from September to October, as average prices of BRL 143.00 per bag must result in gains of only 1.92% in the margin. Although the levels for November continue to grow to BRL 145.00, the market remained within a more measured pattern of price growth in the short term.
In this context, analyzing the historical comparison with already deflated data, we observe that, in September, the average trading price of a 50-kg bag of sugar with up to Icumsa 150 was BRL 140.31 in Ribeirão Preto. In comparison with the same month of the previous year, there was an increase of 54.53% over the average of BRL 90.80 per bag, already deflated. In the margin, there was an 11.67% increase over the average of BRL 125.65 observed in September 2021. Expanding the analysis perspective, we see that the average price in September this year is 84.77% above the average price for this period for the last five years, already deflated, which is currently around BRL 75.94.
In the previous month, current prices had been 61.08% above the five-year average for the period which, until then, was BRL 78.08. As a result, the average price for the last five years between August and September showed a devaluation of 2.65%, in sharp contrast to the increase observed in the margin, where current prices increased by 11.67%. With this, we can interpret that there was an increase in the positive distance between the current price line and its historical average as a result of the increase in the level of current prices and the fall in the 5-year average.
For the month of September, SAFRAS & Mercado expected prices to be around BRL 135.00, which was 3.75% below the effective average price of BRL 140.31 for the period. For October, SAFRAS & Mercado expects prices to fluctuate around BRL 143.00, which must mean an annual increase of 49%, an advance in the margin of almost 2%, and a 74% increase over the five-year average for the same period.