In UNICA’s evaluation, the main factors that led to the reduction were:

• Advanced age of sugarcane fields – the lower renewal rate of cane fields in recent years, combined with a reduction in maintenance and upkeep in some regions, lead to a drop in the productivity of the area to be harvested, as older cane fields produce lower yields. This aspect was considered in the original harvest forecast announced in March;

• Reduced rainfall - the lengthy dry period observed between April and August of 2010, with rainfall well below historical averages, coupled with a “veranico” (a period of unseasonably warm weather) in May of this year, severely hampered plant development. The impact of these adverse weather conditions on agricultural productivity has proven to be more severe than originally expected.

Data compiled by the CTC shows that agricultural productivity of the harvested area to date stands at 76.0 tons per hectare, down 19.66% over the same period a year ago (94.6 tons per hectare).

According to UNICA Technical Director Antonio de Padua Rodrigues, greater availability a year ago of what is known as “bisada” cane (cane that could not be harvested in the prior season) helped to increase average productivity in South-Central Brazil. “However, even if we disregard the amount of “bisada” cane available this season, productivity of the harvested area to date is 13.8% lower than that in the 2010/2011 harvest,” said the executive.

• Unexpected aspects – some variables observed in the current harvest were not considered in the original projection. These include flowering and frost.

The flowering of sugarcane, a phenomenon induced by specific temperature, humidity and solar radiation conditions, has occurred in some producing regions, mainly in the states of São Paulo, Goiás and Minas Gerais. This condition is not desirable in commercial cane fields, because the flowering plant directs energy to its own propagation, which reduces both agricultural productivity and the concentration of sugars in the cane stalks.

Beyond flowering, some sugarcane regions, especially in the states of São Paulo, Mato Grosso do Sul and Paraná, were damaged by frost in late June, which compromised the availability of cane for crushing at several mills. Losses range from the "burning" of sugarcane tips, which inhibits growth, to severe damage to plant tissue.

Fungal diseases such as rust and curvularia, a type of mold, are also being monitored, although they were not yet a significant factor in the downward revision of the forecast for the current harvest. Depending on moisture conditions in coming months, productivity may be affected in areas to be harvested that include cane varieties susceptible to these diseases.

According to Rodrigues, the current situation imposes an additional challenge to any forecasting exercise: "In addition to an imbalance in the harvested areas, atypical climate conditions and varying physiological responses by the crop hinder the use of parameters established with data from past harvests."

"The situation requires continuous monitoring of field conditions over the next three months, during which about 45% of overall production will take place. We will closely monitor these developments and, if necessary, further adjustments and corrections to our harvest projection will be announced," he added.

Quality of the Raw Materials

The same conditions that have caused a drop in sugarcane productivity have impacted the quality of the harvested raw material. By the end of June, the amount of ATR (total recoverable sugars) per ton of cane was 2.80% lower than in the same period of the 2010/2011 harvest (126.82 kg ATR / ton).

The revised estimate indicates an ATR of 135.70 kg per ton of cane, compared to 140.11 kg projected in March and 140.50 kg observed in the previous harvest.

"The concentration of sugars in the plant should remain below last season’s rates and our view is that current conditions will not allow for an adequate response by the plant in terms of ATR," assesses Rodrigues.

Sugar and Ethanol Production

Of the overall revised forecast for the 2011/2012 season, UNICA estimates that 46.94% of the harvested cane will be directed to sugar production, a slight increase over the 45.56% in the original March projection. As in previous years, most of the cane harvested this season (53.06%) will be used for ethanol production.

Sugar production is now projected to reach 32.38 million tons, down 6.36% from the original estimate and 3.35% from the 33.50 million tons produced in the 2010/2011 season.

Ethanol production is expected to total 22.54 billion liters, down 11.61% compared to the volume projected initially and 11.19% below the 25.38 billion liters reached in the previous harvest.

"Basically, the new crushing and ATR levels should translate into a reduction of 2.2 million tons of sugar and nearly 3 billion liters of ethanol compared to the initial projection for this season," said Rodrigues.

Of the 22.54 billion liters of ethanol to be produced this season, 13.99 billion will be hydrated and 8.55 billion will be anhydrous ethanol - enough to meet domestic market needs considering the 25% blending level of ethanol in gasoline currently in force, without taking into account the possibility that additional ethanol may be imported.

Regarding the level of ethanol blended with gasoline, ethanol industry representatives have participated in multi-stakeholder meetings set up by the federal government, where producers, distributors and government officials are continuously monitoring production and consumption levels for both ethanol and gasoline.

Rodrigues says the regular meetings have allowed for dialogue and discussion between the government and all market players, in an attempt to anticipate possible supply problems during the inter-harvest period and provide all necessary support for the government to make informed decisions in relation to the fuels market, especially with regard to ethanol supplies.

Sugar and Ethanol Markets

Under the revised harvest projection, sugar exports are expected to reach 23.13 million tons this season. Ethanol exports, in turn, should experience a drop of 23.60% compared to the year before, totaling 1.35 billion liters for the 2011/2012 season.

According to UNICA’s Rodrigues, "most of the exports refer to commitments made in the past that need to be met this season."

2011/2012 HARVEST UPDATE – TO JULY 1st, 2011

Crushing

South-Central Brazilian mills processed 42.08 million tons in the second half of June, up 0.72% over the same period of the 2010/2011 harvest. Since the beginning of the current harvest, crushing has totaled 177.00 million tons, down 17.95% from the year before.

Quality of the Raw Material

From the beginning of the harvest to June 1st, the quantity of Total Recoverable Sugars (ATR in Portuguese) reached 123.27 kg per ton of sugarcane, a drop of 2.80% compared to the same period in 2010.

Comparing the last two weeks of June with the previous two-week period, the drop reached 4.44%, with the concentration of recoverable sugars totaling 133.52 kg per ton of cane in the last half of June, compared to 139.72 kg in the same two-week period of the 2010/2011 harvest.

Production Mix

Sugar production reached 9.34 million tons from the beginning of the harvest to July 1st, against 11.50 million tons in the same period of 2010. Ethanol production during the same period reached 7.06 billion liters, up from 9.02 billion liters a year before.

During the second half of June, sugar production reached 2.58 million tons, 1.32% higher than in the previous harvest. In the same period, ethanol production reached 1.71 billion liters.

According to Rodrigues, "so far, anhydrous ethanol production by mills in the South-Central region has reached surprising levels. In spite of the drop in the amount of sugarcane processed, anhydrous ethanol production is up 11.67% over the volume produced in the period of the 2010/2011 harvest season."

Ethanol Sales

Total ethanol sales by mills in the South-Central region reached 2.16 billion liters in June, of which 227.00 million liters were exported.

Of the total amount that remained in the domestic market, 1.48 billion liters were hydrous and 667.63 million liters anhydrous ethanol. In the domestic market, anhydrous sales reached 636.26 million litters while hydrous ethanol totaled 1.29 billion liters in the month of June.

From April 1st to June 10th, ethanol sales totaled 5.10 billion litters, 17.84% below the amount sold during the same period last year.

According to Rodrigues, supply and demand conditions today are different from those observed in the past: “The drop in consumption observed so far is a natural supply scenario in a more competitive market.”  This year, prices and consumption of ethanol have been more stable, without sharp reductions during the harvest period, which generally lead to excessive seasonal price swings between the harvest and the inter-harvest periods, he concluded.
 
Sugarcane harvest estimate/ South-Central Region and Bi-Weekly bulletin - 2011 / 2012 Sugarcane Harvest in South-Central Brazil, position on July 01, 2011.

ABOUT THE HARVEST DATA

The data released in this harvest update was compiled and analyzed by UNICA, with figures provided by the following syndicates and associations of producers from the South-Central states:

ALCOPAR - Association of Producers of Ethanol and Sugar in the State of Paraná
BIOSUL- Association of Bioenergy Producers of Mato Grosso do Sul
SIAMIG - Syndicate of Sugar and Ethanol Industries in the State of Minas Gerais
SIFAEG - Syndicate of Fabrication of Ethanol Producers of the State of Goiás
SINDAAF - Fluminense Syndicate of Sugar and Ethanol Producers
SINDALCOOL - Syndicate of Sugar and Ethanol Industry of Mato Grosso
SUDES - Society of Plants and Distilleries of the State of Espirito Santo