- CS Brazil’s cane price is at a record high.
- Strong raws prices, record ethanol prices, and a weaker BRL/USD FX have prompted this.
- Farmer returns have therefore improved, whilst mill margins have weakened.
CS Brazil’s Cane Price Soars to Record High
- CS Brazil’s cane price is at a record high.
- Record ethanol prices, strong raws prices, and a weakened BRL/USD FX have led to this.
Farmer Returns Strengthen, Mill Margins Weaken
- With cane prices at a record high, farmer returns in CS Brazil have strengthened.
- Mill margins, on the other hand, have weakened as CS Brazil’s cost of sugar production has reached a record 1,500 BRL/mt.
- Some mills might have an even bigger bill to pay too.
- The 2021/22 crop started almost 100% priced, meaning the share of sugar exposed to the consecana was also priced.
- There’s a specific timeframe defined by consecana to achieve the average price for both sugar and ethanol.
- So, if a mill hedges faster than defined by consecana, this priced sugar will be mismatched from what’s considered in the consecana price formulation.
- This consecana-hedged sugar therefore didn’t follow the latest sugar and ethanol hikes, which is accounted for in this crop’s cane price.
- These mills should therefore sacrifice part of their margin to cover the difference in cane price.
What Does This Mean for Cane Production?
- We think CS Brazilian cane production will rebound to 540m tonnes following a poor 2021/22 season.
- However, this isn’t because cane prices are at a record high.
- Instead, it’s because drought and frost hit cane development in 2021/22, so if such conditions are avoided in 2022/23, cane production should increase.
- We therefore think Brazil will produce 540m tonnes of cane in 2022/23; less if the weather is poor.
A Reminder: What is the Consecana?
- While, in India, the cane price is determined by the Government, in Brazil, it’s calculated according to the price of the final products it’s used to produce (sugar and ethanol).
- From here, the consecana establishes an ATR value (sucrose level), which is given in BRL/kg of ATR.
- The index, which the mills use it to determine how much they should pay cane suppliers and land leasers, is released every month.
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