Porto Alegre, September 13, 2021 – In August, the highs in average prices of the October 2021 contract are supported by losses in the Brazilian crop and India’s promises to neutralize almost 10 million tons of sugar. The month of August was a period marked by strong upward movements for the October 2021 averages, which, by advancing almost 50% YoY, ended up pricing the crop losses of Brazil’s Center-South, whose output must fall from 605 to 530 million tons. Another support point for prices was the pledge of one of the directors of the Indian Sugar Mills Association to neutralize almost 10 million tons of sugar in the next two seasons. In general, we have a scenario in which, in the 2019/20 season, mills in India employed 800 thousand tons of sugar for the production of ethanol, 2.1 million tons in 2020/21, and the ISMA estimates that 3.4 million tons must be employed in 2021/22. The target for the 2023/24 season is 6 million tons.
Based on these new fundamental scenarios, which were not yet known in July, October 2021 managed to reach and even slightly break the high of 20.00 cents in New York. Nevertheless, SAFRAS & Mercado warns about the coming few months, from September onwards. This is because the most recent maps on rainfall anomaly for the Center-South, from the National Meteorology Institute (Inmet), show there must be more significant rainfall from October, which may recover the region’s crop from current 530 to 570 million tons next season, 2022/23. Another point is the warning that SAFRAS & Mercado has already made about the credibility history of India’s targets to increase ethanol production, which may be frustrated once again, breaking the second point of support on which the foreign market has sustained its recent highs.
In this context, in August, the average closing price of the October 2021 contract on the New York exchange was 19.23 cents. In comparison with the same month of the previous year, there was an increase of 49.85% over the average of 12.83 cents. In the margin, there was a 9.40% increase over the average of 17.58 cents seen in July. Expanding the analysis perspective, we can see that the average price for August this year was 41.59% above the five-year average for this period, which currently hovers around 13.58 cents.
In the previous month, current prices had been 31.55% higher than the 5-year average for the period, which, until then, hovered by 13.36 cents. As a result, the average price for the last five years from July to August increased by 1.64%, while the October 2021 price line ended up advancing 9.40% in the margin. Therefore, the reading is that there was an increase in the positive distance between the price level and its historical average level, even though this one has also advanced.
For the month of August, SAFRAS & Mercado had forecast prices around 17.80 cents, which was 7.44% below the effective average price of 17.58 cents for the period. For the month of September, SAFRAS & Mercado expects prices to be around 19.30 cents, which must mean a 49% high YoY and an 0.36% increase in the margin.