DOLLAR FAVORS EXPORT OF SUGAR AND SUSTAINABLE PRICE INTERNAL UNTIL NEXT SAFRA

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International remunerative prices this year had already benefited the mills, which directed a larger share of food produced for export.

The soaring dollar prices after Donald Trump’s US win once more stimulates Brazilian sugar exports, and domestic prices are expected to remain firm until the start of the next Center-South harvest in April. International remunerative prices this year had already benefited the mills, which directed a larger portion of food produced for export, to the detriment of the domestic market. As a result, crystal values here are around R$ 97 per 50-kilogram bag, up nearly 20 percent in 2016 and close to the highest real level in five years.

The exchange rate is favoring hedge strategies at this moment. “This represents an additional opportunity for future operations for the Brazilian producer,” Plinio Nastari, president of the Datagro consultancy, told Agro Broadcasting (Real State News Service of Estado Group). The math is simple: since sugar for export is traded in US dollars, this represents more Brazilian reais for sellers at the time of currency conversion – which explains the priority given to food over ethanol.

Sugar mills’ preference for sugar production and their overseas sales is due to the 34% increase in the commodity on the New York Stock Exchange, reflecting the prospect of a global production deficit until at least 2017. Calculations by the Center of Advanced Studies in Applied Economics (Cepea / Esalq / USP) show this attractiveness. Last week, for example, the product paid 58% more than anhydrous ethanol mixed with gasoline, and 64% more than hydrated ethanol, used directly in the tank of vehicles.

In the partial of the 2016/2017 harvest, from April to October, Brazil shipped 17.47 million tons of sugar, 32.3% more than in the same period of 2015. This amount represents approximately 54% of what was produced in the accumulated of the season. A year ago, exports were 48% of production. That is, more sugar went abroad in 2016, leading to lower domestic availability. “Domestic prices are expected to remain firm until the start of the next harvest because of the supply situation,” Nastari said, noting that the Center-South is already moving into the period of lower production, which runs from mid-December to March.

Some factors, however, can change this scenario until then, starting with next year harvest. After a season marked by crop failures, given the climatic adversities, expectations for the next cycle are also not the most optimistic, what may further support prices. The evaluation in the market is that the supply of sugar cane tends to be smaller, due to the less than ideal renovation of sugarcane plantations. “The long term will depend on the situation in Brazil. Although the sugar boom helps the industry, the indebtedness of the mills remains high,” said Michael McDougall, commodities director of Societe Generale, referring to the financial difficulties of the production chain after years in crisis.

Even the measures taken by Petrobras influence sugar prices, but in the opposite direction. The possibility of further cuts in gasoline prices by the state company should discourage the manufacture of ethanol, a direct competitor of the fossil fuel. In this way, the mills would tend to direct a larger volume of sugarcane to make sugar, increasing the supply. “For now, Petrobras continues to favor sugar production,” said McDougall. In the current season, almost 47% of the raw material supply was to make sugar, the largest percentage since the 2012/2013 cycle.

And there are even more technical factors. Funds and speculators, which give liquidity to the global sugar market, have been lowering their bets on rising commodity prices, which translates into a drop in the New York Stock Exchange (ICE Futures US). The fear is that these participants will drift further from their positions, which could lead to a sharp drop in New York. Currently, sugar futures are between 19 cents and 20 cents a pound, although at the beginning of the month they have surpassed 22 cents. Hydrous ethanol has been close to R$ 1,800 per cubic meter since the beginning of November, based on the Esalq / BM & F Indicator, whose reference is Paulínia (SP).

Source: revistagloborural.globo.comInternational remunerative prices this year had already benefited the mills, which directed a larger share of food produced for export.

The soaring dollar prices after Donald Trump’s US win once more stimulates Brazilian sugar exports, and domestic prices are expected to remain firm until the start of the next Center-South harvest in April. International remunerative prices this year had already benefited the mills, which directed a larger portion of food produced for export, to the detriment of the domestic market. As a result, crystal values here are around R$ 97 per 50-kilogram bag, up nearly 20 percent in 2016 and close to the highest real level in five years.

The exchange rate is favoring hedge strategies at this moment. “This represents an additional opportunity for future operations for the Brazilian producer,” Plinio Nastari, president of the Datagro consultancy, told Agro Broadcasting (Real State News Service of Estado Group). The math is simple: since sugar for export is traded in US dollars, this represents more Brazilian reais for sellers at the time of currency conversion – which explains the priority given to food over ethanol.

Sugar mills’ preference for sugar production and their overseas sales is due to the 34% increase in the commodity on the New York Stock Exchange, reflecting the prospect of a global production deficit until at least 2017. Calculations by the Center of Advanced Studies in Applied Economics (Cepea / Esalq / USP) show this attractiveness. Last week, for example, the product paid 58% more than anhydrous ethanol mixed with gasoline, and 64% more than hydrated ethanol, used directly in the tank of vehicles.

In the partial of the 2016/2017 harvest, from April to October, Brazil shipped 17.47 million tons of sugar, 32.3% more than in the same period of 2015. This amount represents approximately 54% of what was produced in the accumulated of the season. A year ago, exports were 48% of production. That is, more sugar went abroad in 2016, leading to lower domestic availability. “Domestic prices are expected to remain firm until the start of the next harvest because of the supply situation,” Nastari said, noting that the Center-South is already moving into the period of lower production, which runs from mid-December to March.

Some factors, however, can change this scenario until then, starting with next year harvest. After a season marked by crop failures, given the climatic adversities, expectations for the next cycle are also not the most optimistic, what may further support prices. The evaluation in the market is that the supply of sugar cane tends to be smaller, due to the less than ideal renovation of sugarcane plantations. “The long term will depend on the situation in Brazil. Although the sugar boom helps the industry, the indebtedness of the mills remains high,” said Michael McDougall, commodities director of Societe Generale, referring to the financial difficulties of the production chain after years in crisis.

Even the measures taken by Petrobras influence sugar prices, but in the opposite direction. The possibility of further cuts in gasoline prices by the state company should discourage the manufacture of ethanol, a direct competitor of the fossil fuel. In this way, the mills would tend to direct a larger volume of sugarcane to make sugar, increasing the supply. “For now, Petrobras continues to favor sugar production,” said McDougall. In the current season, almost 47% of the raw material supply was to make sugar, the largest percentage since the 2012/2013 cycle.

And there are even more technical factors. Funds and speculators, which give liquidity to the global sugar market, have been lowering their bets on rising commodity prices, which translates into a drop in the New York Stock Exchange (ICE Futures US). The fear is that these participants will drift further from their positions, which could lead to a sharp drop in New York. Currently, sugar futures are between 19 cents and 20 cents a pound, although at the beginning of the month they have surpassed 22 cents. Hydrous ethanol has been close to R$ 1,800 per cubic meter since the beginning of November, based on the Esalq / BM & F Indicator, whose reference is Paulínia (SP).

Source: revistagloborural.globo.com