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First Drought, Then Too Much Rain. Tough Times for Brazil’s Sugarcane

September 27th, 2009

sugarcaneThe arrival of September, traditionally more favorable for the harvest in weather terms, wasn’t enough to change what has been a constant for South-Central Brazil’s 2009/10 sugarcane harvest. Rainfall well above the historical average for the month was recorded during the first half of September, a period usually characterized by lowest levels of rainfall and the highest rates of products per ton of crushed cane.

Excessive rains have reduced the use of crushing time, resulting in the loss of 11 additional days of crushing compared to the same period in the previous harvest. By the end of the month, the loss is expected to reach 45 days of crushing, against 34 days lost during the same period last year. The number of lost days has been on the increase since June.

The total amount of cane processed in the first half of September reached 29.59 million tons, 13.06 % lower than in the same period a year ago. The total recoverable sugars obtained per ton of cane (known as ATR in Portuguese) were 139.48 Kg, or 11.30 % lower than the 157.25 Kg. level reached in the same two-week period of the previous harvest.

The combination of reduced volume of crushed cane because of weather and a drop in ATR led to a 22.88 % reduction in production for the first half of September.

The accumulated crushed cane total from the beginning of the harvest to September 15 reached 347.62 million tons, 9.72 % above the total for the same period in last year’s harvest. However, the quality of the raw material remained 4.66 % lower than in the previous harvest, totaling 131.66 Kg of ATR/t of cane since the beginning of April, compared with 138.09 for the year before.

The increase in production and drop in the amount of products per ton of sugar made the available ATR for sugar and ethanol production grow only 4.6 % over the same period in last year’s harvest.

Sugar production in the first half of September was 1.78 million tons in the South-Central region, 17.25 % lower than in the same period of the previous harvest. But accumulated production since the beginning of the harvest reached 19.01 million tons, 12.02 % more than the 16.97 million ton output from the same period a year ago.

In overall terms, 43.59% of all the harvested cane was used in sugar production while 56.41 % went to ethanol, with total production in the first half of September reaching 1.32 billion liters, a 26.84 % drop from the same period of last year’s harvest. Since the beginning of the harvest, ethanol production has totaled 15.1 billion liters, almost the same as in the same period of the previous harvest.

Of the 23 new mills expected to launch activities in South-Central Brazil during the current harvest, 17 are expected to be operative by the end of September. The remaining mills are expected to begin operating until the end of the 2009/10 harvest.

The productivity level of the cane harvested until September, of 91.4 tons per hectare, is 1.7 % higher than in the same period of the previous harvest, because of favorable climatic conditions for crop development and a higher proportion of cane that was available but not processed in last year’s harvest.

Deliveries from South-Central Brazilian mills for the domestic market totaled 1.0 billion liters of ethanol in the first half of September, 242 million liters of that in anhydrous ethanol and 773 million liters in hydrated ethanol. The accumulated sale of ethanol to the domestic market reached 10.8 billion liters by September 15, up 16.8 % over the same period of the previous harvest.

Considering the domestic market presence for each type of ethanol, demand is stable for anhydrous ethanol (down 1.3 % compared to a year ago) and higher for hydrous ethanol (24.6 % ahead of last year).

Ethanol exports since the beginning of April were down 27.3 % when compared to last year’s volumes. Output from mills in South-Central Brazil for export totaled 1.9 billion liters, compared with 2.7 billion liters in the previous year.

This decrease was leveraged primarily by the contraction of anhydrous ethanol exports, which are down sharply. The 66.2 % decrease was caused by a decline in direct imports by the United States, which last year totaled nearly 850 million liters.

According to the Brazilian Foreign Trade Secretariat (SECEX), sugar exports from the South-Central Region reached 9.2 million tons between April and early September, a 33.2 % increase over the same period in the previous harvest.

Part of the export volume refers to carryover stocks from the 2008/09 harvest. In value terms, this represents a 53.9 % increase, which reflects the boost in global sugar prices. Sugar exports alone earned an additional US$ 1.0 billion in revenues, beyond the US$ 2.92 billion earned during the same period last year.

An overall assessment of the harvest at this stage indicates that production levels are lower than originally projected, because of the low quantity of products obtained per ton of crushed cane, a consequence of the high incidence of rainfall.

Higher sales to the Brazilian Northeast this harvest season, delays in the launch of new mills slated to begin operations during this harvest and an increase in domestic ethanol demand resulting from low prices throughout the harvest, also contributed to the overall picture.

The revised sugarcane crushing forecast for South-Central Brazil is 529.5 million tons, 3.7% lower than the initial projection and 4.9% above the total in the previous harvest. The amount of sugarcane crushed from the second half of September to the end of the current harvest is expected to be practically equal to last year’s total for the same period.

Weather forecasts for coming weeks indicate more rainfall than in previous years, which does not allow for higher crushing projections between now and mid-December 2009.

The new projection for the current harvest considers that some 50 million tons of available cane will not be crushed within this harvest season. This is equivalent to a total of 6.5 million tons of sugars which could have been processed into sugar or ethanol. Given the current production mix in South-Central Brazilian mills, this would be enough to produce an added 2.5 million tons of sugar and more than 2 billion additional liters of ethanol.

If there are favorable conditions between now and the end of the harvest, it is possible that mills will continue to process cane in the inter-harvest period, of that the next harvest will have an early start date, as was the case at the beginning of the previous harvest.

With the new projection, the expected sugar production for 2009/10 in South-Central Brazil stands at 29.35 million tons, 5.9 % lower than initially projected and 9.7 % higher than in the previous harvest. Ethanol output is now expected to reach 23.75 billion liters, 5.4 % less than in the previous harvest and 9.6 % below originally projected for the current harvest.

The reduction in ethanol exports this harvest, projected to be 1.45 billion gallons less than exported a year ago, will contribute to keep the supply of ethanol for the domestic market at about the same level as during the previous harvest, thus neutralizing the drop in production.

The amount of cane to be crushed between now and the end of the current harvest is now projected at 182 million tons. Considering the current production mix, that should result in 8.65 billion liters of ethanol. Part of that total will be anhydrous ethanol, which guarantees the current level of 25% ethanol blended in all gasoline sold in Brazil.

It is expected that supply and demand for hydrous ethanol in the domestic market will be regulated by prevailing market prices, considering that the Brazilian flex-fuel vehicle fleet already accounts for more than 36% of all Otto Cycle vehicles on the road today. More than 90% of all new light vehicle sales are currently flex models.

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