Main Points

Crop failure in Brazil is greater than expected – 535mmt of sugarcane, the lowest since 2012.
Persistent drought should result in a break of more than 10% in the Center-South region.
ATR and mix help to mitigate the impact on sugar production – 34.2mmt of sugar, 4.5mmt less than last crop.

Worrisome…

At this point, the drought in the Center-South of Brazil, which has devastated the sugarcane fields since last year, is no longer a novelty.
The concern with precipitation in sugarcane regions is because at the right time, rain is essential for the development of the sugarcane field.
Average rainfall, especially in the first quarter, largely determines the behavior of agricultural productivity – that is, tons of sugarcane per hectare.
And this year, the cumulative rains from January to June were 43% below the average, the lowest level in the last decade.

Agricultural productivity figures in recent months show a significant drop, cumulative by 12% up to June.
We must admit that the break was larger than we expected, prompting us to revise our previous estimate of 558mmt.
CS is expected to register a crushing drop of more than 11%, resulting in 535mmt – the smallest crushing since 2012.

But it’s not the apocalypse

The lack of rain affects agricultural productivity (TCH) but also positively impacts the sugar concentration in the plant.
Effect seen last year and which has also been repeated in this crop.

The ATR curve already surpasses last year, with the first half of June registering the highest level in 15 years.
We expect the ATR to at least stay close to the past crop average, helping to partially offset the drop in crushing.
The focus is still on sugar production, even with the parity between ethanol and sugar very close in recent weeks.
That said, with the expected reduction in cane availability, but with a higher sugar concentration we estimate a production of 34mmt of sugar – 1.6mmt less than our last April forecast.

And the Global Impact?

As Brazil is the main supplier of raw sugar in the world (80% of all supply in 2021), naturally a news of reduced availability of sugar leads us to question how the world balance is.
From the drop of 1.6mmt, around 1mmt of crude is reduced from the balance of exports in the next quarters of the 21/22 crop.
The biggest impact is expected in Q1’22, as the reduction in the crop estimate leads mills to cancel their commitments towards the end of the cycle.

Ana Zancaner

Ana graduated from Insper University Sao Paulo in 2013, with a bachelor’s degree in business administration. She joined CZ as an intern in 2013 and is now our senior analyst in our Sao Paulo office. At CZ she is responsible mainly for analysis of the Brazilian sugar and ethanol sector but supporting other consulting requests as well.