Report Highlights: 

The Brazilian MY 2014/15 sugarcane crop is projected at 629 mmt, down 21 mmt from MY 2013/14 (650 mmt), mainly due to weather related problems in the center-southern producing region. Approximately 46.5 percent of the crop should be diverted to sugar, up 1 percentage point compared to the previous season. Total exports for the upcoming MY are forecast at 25.25 mmt, raw value, down 4 percent compared to the previous marketing year.

Production 

The Agricultural Trade Office (ATO/Sao Paulo) projects the marketing year (MY) 2014/15 Brazilian sugarcane production at 629 million metric tons (mmt), down 3 percent from the previous season (650 mmt). The Center-South (CS) region is expected to harvest 575 mmt of sugarcane, a 3.5 percent decrease relative the previous crop (596 mmt), due to projected lower agricultural yields as a result of irregular weather conditions (drought) and below average replanting of sugarcane. Post projects the North-Northeastern (NNE) production for MY 2014/15 at 54 mmt, similar to MY 2013/14. 

In spite of the drought in several growing areas in the Center-South, which has delayed the maturity of the sugarcane, the crushing season has already begun for several units which need to make money to balance their cash flow. 

Total sugarcane area for MY 2014/15 is projected at 9.9 million hectares (ha), up 100,000 ha from last year.

Post projects the industrial yield for MY 2014/15 at 131.5 kg of TRS (total reducing sugars)/mt, down 2 kg from the previous marketing year, due to weather related problems during the herbicide spray period in 2013 and expected higher mechanized harvest rates. 

Sugar and Ethanol

Total sucrose (total reducing sugar, TRS) content diverted for sugar and ethanol production for MY 2014/15 is predicted at 46.5 and 53.5 percent, respectively. The revised sugar-ethanol mix for MY 2013/14 is 45.5 and 54.5 percent. Sugar-ethanol mills are expected to divert more sugarcane to sugar in the upcoming crop. The industry is expected to comply with the sugar export contracts and guarantee enough anhydrous ethanol production to blend with gasoline. Hydrated ethanol production will be the last option pursued by the millers due to cost restrictions. 

ATO/Sao Paulo forecasts the MY 2014/15 sugar production at 36.8 mmt, raw value, down 1 mmt compared to revised figure for MY 2013/14 (37.8 mmt). The CS states should account for 33.55 mmt, raw value, a 3 percent drop compared to the previous MY (34.6 mmt). The NNE output for MY 14/15 is preliminarily forecast at 3.25 mmt of sugar, raw value, similar to MY 2013/14 (3.2 mmt). The MY 2014/15 ethanol production in projected at 25.5 billion liters (12.8 billion liters of anhydrous ethanol and 12.7 billion liters of hydrated ethanol). 

According to the Sugar and Alcohol Millers Association of Sao Paulo State (UNICA), 596.3 mmt of sugarcane were crushed in the CS from April 2013 through March 15, 2014, up 12 percent compared to the same period for 2012/2013. UNICA reports that 34.29 million tons of sugar, tel quel, and 25.56 billion liters of ethanol were produced through March 15, representing a 1 and 20 percent increase, respectively, compared to 2012/2013 levels (34.1 million tons of sugar and 21.4 billion liters of ethanol). These numbers also show that more sugarcane has been diverted toward ethanol production (54.77 percent compared to 50.45 percent in 2012/2013).

Sales of FFV currently represent close to 90 percent of total vehicle sales.

The steady sales of flex-fuel vehicles do not solely guarantee a higher demand for ethanol given that consumers’ decisions are driven by the ratio between ethanol and gasoline prices. The 70 percent ratio between ethanol and gasoline prices is the rule of thumb in determining whether flex car owners will choose to fill up with ethanol (price ratio below 70 percent) or gasoline (price ratio above 70 percent). 

As it occurred in 2013, due to higher ethanol prices during January-February 2014, gasoline consumption was favored in several Brazilian states, except Sao Paulo, thus reducing ethanol demand during this period.

The continued losses in competitiveness for ethanol have resulted in serious financial problems for many mills. According to post contacts, six sugar-ethanol plants have already filed for bankruptcy in 2014. UNICA reports that in the past 5 years, 44 units closed and an additional 12 plants suspended operations.

Fuel consumption in Brazil, as reported by the Petroleum, Natural Gas and Biofuels National Agency (ANP), follows. There is the steady increase in gasoline consumption in the past years, therefore the continuous growing demand for anhydrous ethanol. The figures take into account the product sales by distributors and do not include illegal sales, which were common in the past for hydrated ethanol due to tax differentiation between both types of ethanol.

According to the Ministry of Agriculture, Livestock and Supply (MAPA), cumulative sugar production for the 2013/14 through March 15, 2014 was reported at 37.54 mmt. Ethanol production through March 15, 2014 was reported at 28.14 billion liters – 11.75 billion liters of anhydrous ethanol and 16.39 liters of hydrated ethanol. 

Sugarcane, sugar and ethanol prices in the Domestic Market 

The State of Sao Paulo Sugarcane, Sugar and Alcohol Growers Council (CONSECANA) reports that the average sugarcane price (April 2013-January 2014) for the state of Sao Paulo for the 2013/14 crop was Real (R$) 0.4524 per kg of TRS, or R$60.34 per ton of sugarcane, down R$4.62 per ton compared to the 2012/13 crop (R$0.4791 per kg of TRS, or R$64.96 per ton of sugarcane), due to lower industrial yield and lower prices paid for sugar and ethanol during the crushing season compared the previous year. Note that CONSECANA’s prices are based on both sugar and ethanol prices in domestic and international markets. 

The Crystal Sugar and Ethanol Indexes released by the University of Sao Paulo’s College of Agriculture "Luiz de Queiroz" (ESALQ) follow. The Indexes track crystal sugar, anhydrous and hydrated prices received by producers in the domestic spot market.

Consumption 

Brazilian sugar consumption for MY 2014/15 is projected at 11.5 mmt, raw value, up 240,000 mt from MY 2013/14 (11.26 mmt), reflecting the Brazilian population growth and a continued expansion in the food processing sector. 

Exports 

Sugar Exports

ATO/Sao Paulo forecasts sugar exports for MY 2014/15 at 25.25 mmt, raw value, down 950,000 mt from MY 2013/14 (26.2 mmt) due to lower expected sugar production, therefore lower expected exportable supply. Raw sugar should account for 20.2 mmt, raw value, whereas the remainder represents exports of refined sugar. 

Stocks 

Total sugar ending stocks during MY 2014/15 are projected at -145,000 mt, up 50,000 mt from revised figure for MY 2014/15 (-195,000 mt). Negative stocks have been balanced by the early start of crushing, March/April as opposed to May. 

Policy 

The current ethanol content blended to gasoline is set at 25 percent. In March 2014, the Brazilian Government announced the continuity of the Prorenova for 2014, a credit line of R$3 billion (approximately US$ 1.25 billion) available to finance the renewal and/or expansion of sugarcane fields. The interest rate is set at the “long term interest rate” (TJLP) plus 2.7 percent per year