Sugar: Oil & The Brazilian Real Remain Key

The outlook for the sugar market has changed dramatically since the start of the year. From a constructive outlook, the market has been sold off aggressively due to weakness in oil and the Brazilian Real (BRL). These two factors will see producers in CS Brazil increase sugar output significantly this season.

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CS Brazil 2020/21 season well underway

Crushing in CS Brazil is well underway, and the industry has had a strong start according to UNICA, the Brazilian sugarcane industry association data.

The cumulative cane crush through until the end of May for the 2020/21 season starting in April is 144.8mt, up 12% year on year. However what's even more impressive, is the fact that sugar production stands at a little over 8mt already, up 65%YoY. Total sugar output this season from CS Brazil is set to reach near-record levels, with estimates of almost 36mt, up from close to 27mt in 2019/20.  

Mills in CS Brazil have shifted their production mix significantly this season towards sugar, with sugar prices trading well above ethanol parity

Mills in CS Brazil have shifted their production mix significantly this season towards sugar, with sugar prices trading well above ethanol parity, and so sugar provides a better return than ethanol for mills. This has been a big shift from the trend we have seen in recent years. Over the past couple of seasons, given the global sugar surplus, mills had been maximizing ethanol over sugar. So far this season, the cumulative sugar mix stands at 45.92% compared to 33.31% at the same stage last year.

Weak energy prices have driven this shift

The significant sell-off seen in the oil market over the first quarter, through into April was the key catalyst for the pressure on sugar prices, with it dragging Brazilian ethanol prices lower. Country lockdowns and travel restrictions led to a significant amount of oil demand destruction, with global oil consumption falling by almost 30% YoY in April, whilst over full-year 2020, oil consumption is forecast to fall almost 10% YoY.

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