Sugar keeps getting stronger in the brazilian physical market


   Porto Alegre, June 07, 2021 – Climate models show the worsening of the drought over the producing regions of the Center-South, putting crystal under a new bullish perspective for the coming few months; The domestic market continues with heated demand and rising prices.

    The most recent data on monthly average prices of crystal sugar with up to Icumsa 150 in the Brazilian physical market, on average for the interior of São Paulo and for the month of May, showed more intense valuations than initially estimated for the period. Still in April, SAFRAS & Mercado warned that levels between BRL 115 and 120 would be sought by crystal sugar over the next few months. In fact, this is what has happened in the market, with the crystal sugar trading average going from BRL 106 to 114 per bag. The pivot for the intensification of the upward movement is the drought in cane-producing regions of Brazil’s Center-South, which must worsen in June and July.

    Still at the end of May, SAFRAS & Mercado warned in a report about the intensification of the water deficit in producing regions from June to July. This climate risk movement further intensifies the damage to sugarcane fields, reducing the availability of sugarcane for the production of derivatives. As the mills have made too many commitments with VHP sugar at the same time that hydrated ethanol gains a new upward bias, crystal sugar ends up suffering the impact of the competition with the other sugarcane derivatives. In terms of demand, the trend remains bullish amid processing industries, which puts even greater positive pressure on crystal sugar prices.

   In this context, analyzing the historical comparison with already deflated data, we observe that, in May, the average trading price of a 50-kg bag of sugar with up to Icumsa 150, in Ribeirão Preto, was BRL 114.95. In comparison with the same month of the previous year, there was an increase of 45.76% over the already deflated average of BRL 78.86 per bag. Despite strong annual gains, in the margin there was an appreciation of 7.70% over the average trading price of BRL 106.73 observed in April 2021. Expanding the analysis perspective, we see that the average price of May this year is 39.42% above the average price for this period over the last five years (already deflated), which is currently around BRL  82.45.

    In the previous month, current prices had been 32.42% above the five-year average for the period, which was BRL 80.60 until then. As a result, the five-year average between April and May showed an appreciation of 2.29%, sharply contrasting with the high observed in the margin, where current prices increased by 7.70%. With this, we can interpret that there was a positive distancing of the price line from the historical average seen in April, although the historical average has also advanced in the short term. For the month of May, SAFRAS & Mercado expected prices to be around BRL 112.00, which was 2.56% below the effective average price of BRL 114.95 in the period. For the month of May, SAFRAS & Mercado expects average prices to be around BRL 118.00, which must account for increases of 47% YoY, 2.66% in the margin, and 43% over the average price for the last five years for the same period.