Centre South Brazil 2015/16 Crush: A Record Season?
Centre South (CS) Brazil is the world’s largest cane growing and sugar producing region. It is also the world’s dominant raw sugar supplier. As Northern Hemisphere cane crops draw to a close, market attention is now firmly focussed on CS Brazil and its upcoming harvest.
The sugar market is enduring its 4th year of surplus and falling prices. 9 CS Brazilian mills have shut from the previous season, meaning roughly 20% of mills in the region are not operational. Sector debt has increased. Can it really be that CS Brazil could produce a record amount of sugar this year?
“Following our recent crop tour of CS Brazil we now expect record cane availability of 604m tonnes. This raises the prospect of a record cane harvest in 2015/16.”
Ana Carolina Ferraz, Analysis Manager
- Cane renovation levels have fallen from 17% to 14% meaning that more cane is available for crushing today.
- The 2015/16 crop will see a 1% increase in cane area, to 7.9m hectares.
- However, the lack of renovation means that the acreage of first cut cane has fallen from 1.5m ha to 1.3m ha. Only 30% of the first cut cane available is from fresh area expansion.
- Weather has been almost exactly in line with historical averages since March 2014, and was especially favourable for cane development in the off-crop.
- We are therefore hopeful that ag yields can recover this season.
- However, average cane age is expected to increase to 3.5 years. We have also seen reduced cane maintenance, and this will limit the upside for ag yields.
- Taking all of this into consideration, we expect ag yields to increase by 3.5%, reaching 76 mt/ha in the 2015/16 crop.
- In summary, agricultural prospects for the next crop are positive. We believe cane availability could reach 604m tonnes, a new record.
- The previous record crush in 2013/14 of 597m tonnes was achieved with 20 more mills in operation than we expect for the coming season.
- We estimate that cane crushing capacity is around 30m tonnes lower than it was in the 2013/14 season. Crushing in that season lasted for around 230 days.
- In order to achieve our crush forecast of 596m tonnes in 2015/16 we need to see the industry crush for 250 days, which is 6 days longer than what was achieved last year.
- Put simply, we need dry weather at the end of the crop to hit our targets.
- We are forecasting another strong sugar mix, of 44.5%. The weakness of the BRL still incentivises the industry to maximise sugar output.
- We therefore forecast 34.0m tonnes of sugar production in the 2015/16 season (32.0m tonnes in 2014/15).
Financial Performance – Market Conditions
- The decline in sugar prices has in part been offset by the weakness of the BRL.
- For those mills able to price early (“Tier 1” and “Tier 2” mills, ~50% of crushing capacity), the contango in both the sugar and BRL futures has enabled them to secure strong returns.
- Even those mills pricing on a more spot basis are likely to benefit. Sugar returns for the industry as a whole could be the strongest since 2012/13.
Financial Performance – Government Measures
- The government has taken measures to increase tax collection and cash flow generation. Some of these have been positive for the cane industry, including:
- Reintroduction of CIDE/PIS COFINS taxes of BRL 0.22/l on gasoline.
- Increasing the anhydrous blend from 25% to 27% in gasohol.
- Changing the tax spread between hydrous/gasoline in Minas Gerais in favour of ethanol.
- Sector inclusion in the REINTEGRA program – a tax refund benefit for exporters.
The Start of the Season
- Around 100 mills had started crushing by the middle of April, with another 100 expected to start operations in the second half of the month.
- 13.8m tonnes of cane had been crushed by the middle of the month, up 10% on the previous year.
- The weather in April has been largely good for cane harvesting and crushing.
- However, the industry and the trade remain cautious over the May weather forecast and early season sugar availability.
Ana Carolina Ferraz, Analysis Manager, said, “Following our recent crop tour of CS Brazil we now expect record cane availability of 604m tonnes. This raises the prospect of a record cane harvest in 2015/16.”
- CS Brazilian sugar production is expected to increase by 2m tonnes this season compared to last season.
- It looks like the pressure on the industry will continue this season given such strong availability.
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