Despite unseasonable rains that brought negative effects through most of 2009, the sugarcane harvest in South-Central Brazil reached 523.24 million tons on December 31, a 5.24 increase over the total for the same period a year before. In the second half of December alone, 10.31 million tons were crushed, up 54.85 over the same period in December of 2008.

Crushing in mid-December was up sharply compared to a year ago because a large number of plants continued to operate during what is normally the inter-harvest period, when plants shut down for maintenance and to avoid the wet season. While in 2008 only 14 companies were in operation in early January, 56 units were active at the start of 2009. UNICA estimates that over 90 companies will process cane in January of 2010, with some expected to continue crushing until March, when the new harvest officially begins.

Despite a growing volume of crushed cane, the quantity of products obtained per ton remains 7.09% below the observed value between April and December of 2008. Total Recoverable Sugar (ATR) concentrations remained low because of the wet weather, leading to a 2.22% drop in overall volumes for sugar and ethanol produced by the end of December.

Lower sugar production

Since the beginning of current (2009/10) harvest, 43.31% of all processed cane in South-Central Brazil went to sugar production, and 56.69% to ethanol. Overall sugar production had reached 28.30 million tons by the end of November, 6.53% higher than the volume produced in the same period of the previous harvest. In the same period, total ethanol production reached 22.73 billion liters, 7.69% below the volume produced in the previous harvest.

For the past five consecutive two-week periods, the proportion of cane destined for sugar production has been reduced, while more cane has been used to produce ethanol. In the second half of December, 71.09% of all processed cane went to ethanol production, while only 28.91% were used to make sugar. In the final two weeks of December, 352,30 tons of sugar and 532.90 million gallons of ethanol were produced, with the ethanol total breaking down into 105.70 million liters of anhydrous ethanol (which is mixed with gasoline) and 427.20 million liters of hydrous ethanol (which is used as E100 fuel in flex vehicles).

Ethanol sales

For the month of December, ethanol shipments by South-Central Brazilian mills totaled 2.11 billion liters, split into 118.12 million liters for the export market and 1.99 billion for domestic use. Overall totals since the beginning of the harvest show ethanol sales at 20.39 billion liters, only 4.89% above the total for the same period last year.

Sales of hydrous ethanol for the domestic market reached 1.46 billion liters in December, a 7.65% increase compared to the same month in 2008 and a 4.56% increase over figures for the month before. This growth in comparison with November was already expected, because fuel consumption traditionally increases in Brazil during December, a summer holiday month.

Retraction in hydrous ethanol use

Despite growing sales figures in absolute volume terms in December, a more detailed analysis that takes seasonal factors into consideration shows that in fact, what has taken place is a retraction in the growth rate of hydrous ethanol sales in the domestic market. The rate of growth has been falling since June of 2009, when domestic sales were up by 27.78% compared to the same month a year before. The October increase fell to 18.36% compared to October of 2008, with new drops in November, to 14.80%, and December, when sales increased by only 7.65% compared to December of last year.

These reductions are a direct consequence of the gradual increase in the price of hydrous ethanol at the pump, which resulted from weather-related difficulties through much of the 2009-10 harvest and the proximity of the inter-harvest period, when production normally grinds to a halt. Data from the National Petroleum, Natural Gas and Biofuels Agency (ANP) shows that during the past week, prices for hydrous ethanol at the pump remained below the 70% threshold in only six Brazilian states (Goias, Mato Grosso, Sao Paulo, Parana, Pernambuco and Tocantins. If a 65% threshold is considered, ethanol prices remained competitive in only two states (Mato Grosso and Goias). It is generally accepted that ethanol is a good buy when the price per liter is no more than 70% of the price of gasoline. The ANPs data indicates that demand for hydrous ethanol is likely to fall even further in January, also a busy summer holiday month in which ethanol consumption tends to increase.

Sugar and Ethanol Prices

Regarding the steady rise in prices in recent months, UNICA reiterates that unusually wet weather conditions that seriously hampered the harvest were the major cause. Even though the total amount of processed cane grew by 30 million tons, product volume for sugar and ethanol were 2.22% below a year ago because of low ATR levels.

A 25% increase in ethanol demand through the harvest season, fomented by low prices during the first half of 2009, led to a natural recovery in price levels during the second half of the season, which is a key factor for the industry’s economic sustainability. The often heard assumption that increased sugar production caused a reduction in ethanol supplies is therefore a flawed interpretation of what took place. It should also be noted that the flexibility to redirect ethanol production to sugar is restricted in most of the industry. In all, 18% of total processed cane in the South-Central region, or about 85 million tons, is dedicated exclusively to ethanol production.

Over 50% of the increase in Brazil’s sugar exports in 2009 were covered by stockpiled sugar produced in the previous harvest. Inventory financial costs (loading costs) due to past global oversupply were covered by producers, which means prices were often below production costs. The combination of these factors, not a simplistic analysis concluding that more sugar was produced at the expense of ethanol, are what led to the current scenario.

ABOUT 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 Ethanol Manufacturing Industry in the State of Minas Gerais
SIFAEG - Syndicate of Ethanol Producers of the State of Goiás
SINDAAF - Fluminense Syndicate of Sugar and Ethanol Producers
SUDES - Society of Plants and Distilleries of the State of Espirito Santo

For the latest comparative data on the cane harvest, click here.