Biosev and Bunge set outlook for sugar and ethanol market

Last year’s price analysis determines the paths of this and the next crop

The global sugar market deficit for 2019/20 is already certain. At least that is what two large companies in the sugar-energy sector claim: Biosev and Bunge. On Monday (16), during the first day of the NovaCana Ethanol Conference, company representatives presented their views on the sugar and ethanol sector in the “Market Intelligence in Action” panel.

Biosev’s expected deficit for 2019/20 is 5.4 million tons, while Bunge’s deficit is only one million tons, moving towards stability.

For Biosev’s energy and market intelligence manager, Luiz Fernandes, the deficit is not a positive indicator for sugar prices. “We need the deficit to make the market more balanced,” he points out, and adds: “Having another surplus would be unsustainable for stocks as they are today.”

For him, the price of sugar in 2020 should be below the value of ethanol, so that Brazilian mills continue to prioritize biofuel, avoiding a new surplus for sugar. Recovering a track record from 2012 to 2017, he explained that ethanol served as the sugar price floor and did not pay the premium. After this moment, the trend reversed and biofuel became the ceiling of the commodity market.

Bunge research manager Luciana Torrezan recalls that this is the first deficit after two surpluses, thanks to Asian and Brazilian productions. “Brazil reduced its sweetener production by 10 million in 2019/20; other countries have also reduced, but less, ”he explains.

It also expects a 1.5% growth in world consumption per year. “From now on, the world will need Brazil to increase sugar production, but that does not mean that Brazil will need to maximize sugar production. Through our exercise, this would only be possible from 2024/25, ”he says.

Still, for now, she points out that large producers hold record sweetener stocks. According to Fernandes, the world still has a surplus of 4.5 million tons until at least the beginning of 2020.

“Throughout 2020, this sugar will be consumed until it reaches equilibrium, but the price should be under pressure during this process, until the second half of 2020, when it may have a recovery,” details Torrezan.

Looking ahead, Torrezan expects the milling to be similar in 2020/21, depending on the available area, which may be smaller. There are major climate influences that need to be considered by then.

Stagnant sugarcane production

Luiz Fernandes points out that the Brazilian milling must remain stable, same view of Luciana Torrezan. For both, it should not exceed 600 million tons in the next three years.

The Biosev manager still scores an improvement in average productivity. “There is a tendency to reduce the average age of sugarcane fields,” he adds. However, the company’s estimated crushing should be stable in 2018/19, between 585 million and 595 million tons for the next years.

Looking to the short term, for 2019/20, Bunge estimates a grinding of 586 million tons – while Biosev projects one ton less. Biosev’s expected yield is 77.4 tons of sugarcane per hectare.

In addition, the maximization of ethanol production is still expected by both companies, with 32.1 billion liters of biofuel. When it comes to sugar, Bunge expects 26.6 million tons and Biosev 25.9 million tons.

The expected demand for 2019/20 is the highest in history: 32.4 billion. According to Fernandes, the increase in demand occurred with the drop in the relationship between ethanol and gasoline in the state of São Paulo.