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Brazilian Millers to Boost Sugar Production in Currency Play

Isis Almeida

isiscarol14
February 1, 2016 2:26 PM HKT
Updated on February 1, 2016 9:23 PM HKT

Sugar production in Brazils center south, the main growing region of the worlds largest producer, will rebound this year as the real tumbles, boosting
earnings of the commodity sold in U.S. dollars, according to Copersucar SA, the sugar cooperative of 37 mills.
Output in the region will rise by about 3 million metric tons to 33 million tons this year, Paulo Roberto de Souza, chief executive officer at the Sao Paulobased company, said in an interview Sunday at the Dubai Sugar Conference, a private industry event. Mills are taking advantage of a cheaper Brazilian
currency and have already sold about 60 percent of their production, he said.
El Nino-induced rains slowed the harvest in Brazils center south, with production for the season that ends in March lagging 4.3 percent behind output a year
earlier, according to data from Unica, the Brazilian sugar industry trade group. A political and economic crisis in Brazil sent the real tumbling more than 30
percent last year, the second-worst performer in a basket of 24 emerging market currencies tracked by Bloomberg.

More sugar
Looking at the price curve in reais and to the price of ethanol, the price indicator points to more sugar production, said de Souza, who is also on the board of
Alvean, a joint venture between Copersucar and Cargill Inc. and the worlds largest sugar trader. We see a mix thats more diverted to sugar."
Sugar futures traded in New York rose for the first time in five years in 2015, boosted by smaller output in Brazil and prospects for a global shortage. The 5
percent gain made the commodity the third-best performer in the Standard & Poors GSCI gauge of 24 raw materials. Prices tumbled 14 percent this year to
13.11 cents a pound as funds pulled out of commodities.
A jump in Brazils sugar production this season will be offset by smaller harvests elsewhere including in India and Thailand, according to Copersucar. Global
production will fall short of consumption by 5.5 million tons in the year ending in September and another deficit of 6.2 million tons is forecast for the
following year, according to estimates Olam International Ltd., one of the worlds largest food traders.
Im constructive," de Souza said, estimating this years average price at 15 cents a pound. We dont see more production coming out of India, we dont see
more production coming out of Thailand and Brazil is coming with 3 million tons more only and with very low carryover stockpiles of ethanol."

Biofuel inventory
Brazilian millers use cane as a raw material to make both sugar and ethanol. The nation will have less than 15 days of biofuel inventory when the season ends
in March, Copersucar estimates. Millers usually have stockpiles to last more than a month. The price of hydrous ethanol, the kind used in flex-fuel cars,
climbed to a record this year, data from Cepea, a University of Sao Paulo research group, shows.
Brazilian ethanol consumption remained high last year even after relative prices at the pump rose above that of gasoline, de Souza said. Brazilians are so cashstrapped that they are filling their cars up with ethanol just because the price of a tank is lower. They are not taking into account the fact that ethanol burns
faster and theyll have to refill more often, he said. Ethanol costs reach parity at about 70 percent of the price of gasoline.
"Weve seen a significant rise in ethanol demand in Brazil and now prices are having to go up to limit demand," he said.
Millers in the center south will process 615 million tons of cane, up from about 600 million tons in the current
season, de Souza estimated. Rain last season meant that 35 million to 40 million tons were left in the fields.

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Millers will direct about 42 percent to 43 percent of the crop to making sugar, and ethanol production will remain

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unchanged at 27 billion liters, Copersucar estimates. Mills wont be able to make only sugar due to capacity
restrictions.

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If you have capacity, you can make that product that pays you more," de Souza said. If you dont, you crush
because not crushing is the worse for your business."

Price outlook
Sugar prices will remain volatile this year, ranging from 13 cents to 17 cents a pound, and the weather will be key to determine how production in Brazil
progresses, de Souza said. While El Nino-related rains disrupted the harvest in the second half of 2015, the opposite could happen this year if the weather
event extends into March and April, he said.
If the weather dries up a lot, how much more can Brazil crush? Maybe 10 million tons," he said. But the opposite is also true. If we have weather problems,
which we could considering El Nino, Brazil may not even crush 600 million."