- Prices for the commodity are hovering near a four-year high
- Increased production from top exporter could stabilize prices
Brazil’s battered millers are rushing to find ways to produce more sugar with little investment, trying to reap the benefits of higher prices for the sweetener in global markets without increasing a debt burden which has crimped the industry for years.
Millers from the world’s top exporter of the commodity are looking for funding to make minor investments in plants or even building new ones to extract more sugar and less ethanol from their existing sugar cane crop. With sugar prices hovering near a four-year high and worth about 30 percent more than the biofuel, producers want to increase the sweetener’s share to as much as half of the crop, from about 44 percent currently.
The shift, which needs to start by September at the latest in order to be completed by the start of the next crop, could add as much as 2 million metric tons to Brazil’s sugar output for next year, according to consultancy group FG Agro. The increased production should help ease a global deficit and could stabilize prices for the commodity worldwide, according to Bruno Lima, head of sugar at futures and options brokerage INTL FCStone.
"The additional production from Brazil could keep prices from rising even more," he said by phone from Campinas, Sao Paulo. "It would also drive up the ethanol prices in Brazil."
Brazil’s sugar producers have been burned before trying to capitalize from better global conditions for the commodity. Companies loaded up on debt to carry out their aggressive expansion plans in the early 2000s, pushing sugar-cane production to more than double between 2000 and 2010. They were ravaged in the last few years by a plunge in the nation’s currency, which made the dollar debt more expensive, and falling prices for the sweetener and ethanol. About 50 ethanol and sugar mills closed and 70 have filed for bankruptcy since 2011 -- about 30 percent of the total, according to data from industry group Unica.
“We are looking for funding for some of our clients," said William Hernandes, a Sao Paulo-based analyst at FG Agro. "It’s a small investment, that can be paid in eight months, considering actual prices."
Sao Paulo-based group Arakaki is trying to raise funding to build a sugar factory in its mill, which currently uses its 2 million tons of sugar-cane only for ethanol production. FLim Participacoes, a joint venture run by Indonesian Salim Group and its local partner JF Citrus, is planning to build a sugar factory in the ethanol plant it purchased earlier this year from Archer Daniels Midland, in Brazil’s Minas Gerais state. After the factory is ready, all the sugar-cane available for the plant will be used to make sugar -- the company expects to produce as much as 120,000 tons in 2017, Carlos Eduardo Turqueto Santos, partner of JF Citrus, said by phone.
Still, there might not be enough sugar cane available in Brazil to help boost profit at millers. Weather and low investments in fields have hurt the productivity of the crop and sugar production might not be much higher next season even if farmers invest in new equipment, according to Czarnikow trader Pedro Mamoru.
Industry group Unica said on July 21 that cane availability in Center-South for the next year will be smaller than this year, as lack of investments in sugar-cane renewal should lead to lower yields.
World sugar consumption will outpace production by 3.8 million tons in the 2016-2017 season, which starts in October, according to the International Sugar Organization. That’s a smaller than the deficit of 6.7 million tons estimated for current season, the first shortfall after five years of surpluses. The deficit has pushed up prices, which have climbed 89 percent in the past year to 20.35 cents per pound on ICE Futures New York, and in June touched the highest level since 2012.
(An earlier version of the story was corrected in the third paragraph to say deficit not glut.)