Sugar increases advantage over ethanol in the physical market in June

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    Porto Alegre, July 26, 2021 – SAFRAS & Mercado projects that the 7% advantage of crystal sugar over the average of hydrated ethanol observed in June will be raised to 10% in July with the increase in sugar prices. The month of June was marked by the expansion of the level of advantage of crystal sugar with up to Icumsa 150 when compared to the average of anhydrous and hydrated ethanol in the Brazilian physical market. The period was marked by moderate downward adjustments to fall in the average prices of hydrated and anhydrous ethanol, while crystal sugar with up to Icumsa 150 managed to advance. Taking a closer look, we see that while anhydrous and hydrated ethanol fell 1.25% and 0.64% in June, crystal sugar with up to 150 Icumsa rose 1.21%. This dichotomous behavior in the price evolution of both cane derivatives caused the sugar advantage ratio to rise from +5.05% to +7.73% between May and June this year.

     It is also important to remember that, within the patterns observed in 2021, these levels are timid, since the average for the year is of 15.38% gains of sugar over hydrated ethanol, with all products converted into reals per 50-kg bag. Still in January, the sugar advantage had surpassed 35%, but then it dropped to 17% in February and 11% in March. In April there was a recovery of this advantage to 16%, implying that a new upward trend, at least towards the 20% level, had been formed. The background of these upswings in the advantage of crystal sugar over the average price of anhydrous and hydrated sugar is the strong competition that crystal sugar presents against the production of VHP sugar and hydrated ethanol, which reduces the supply of the latter and sustains its prices. The production losses, first caused by drought in the Center-South and now more often by frost, must aggravate this scenario.

    In this context, in June, the trading price of anhydrous ethanol averaged BRL 3.53 a liter, while hydrated ethanol hovered around BRL 3.55 per liter, both in the Ribeirão Preto region. These values converted into 50-kilogram bags were respectively equivalent to 105.75 and BRL 111.06, which result in an average of BRL 108.04, which serves as comparison with sugar. In the same period and same region, a 50-kilogram bag of crystal sugar with up to Icumsa 150 reached BRL 116.33, against BRL 114.95 in the immediately previous month. As a result, the price advantage of white sugar over ethanol (average prices of anhydrous and hydrated ethanol traded in the same period and region) traded in the domestic market was 7.32% in June.

    This sugar advantage ended up retreating 17.20% from the same time last year when the commodity paid 24.51% more than the biofuel. Nevertheless, when compared to the immediately previous month, we can see an increase in the advantage of 2.27% of sugar over ethanol when the commodity paid 5.05% more than the biofuel. Compared to the crop’s average, June data were 2.12% lower, as the average of the 2021/22 crop is 9.46%.

    For June, SAFRAS & Mercado had predicted the advantage of sugar over ethanol would oscillate by 12.41%. So, the estimate was 7.36% above the effective data of 7.32% for the period. For July, SAFRAS & Mercado expects sugar to have an advantage of 10.02% over ethanol in the Brazilian physical market. These calculations take into account the average expectation of BRL 3.45 per liter for hydrated ethanol, BRL 3.55 for anhydrous ethanol, and BRL 118.00 for a 50-kg bag of crystal sugar with up to Icumsa 150. In the long term, since January 2008, sugar has had a 29.93% advantage over ethanol. On the average of the 2021/22 crop for the commodity, the advantage of sugar over ethanol reaches 9.46%.

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