What to expect from the 2024-25 sugarcane harvest

The last two weeks have seen a more subdued market amid the year-end festivities. Volume was not significant and prices remained in a narrow range between 20,5 and 21,7c/lb.

After a major collapse following the realization that Brazil has more raw materials than previously anticipated, 20c/lb has proven to be a short-term floor. As we enter 2024, the downtrend has solidified, making it quite difficult to argue for a return to 28c/lb. However, as is common at the beginning of each year, the weather can increase volatility. Many houses have released their first estimates for 24/25 in relation to the Brazilian Center-South and the prospects are good.

“As discussed previously, our first guess would be a small correction in productivity partially offset by bisada cane potential, meaning the country could produce 640 Mt next year - almost as good as 23/24. However, as time passes and precipitation does not remain at average levels, it may be necessary to make a new estimate”, says Lívea Coda, Sugar and Ethanol analyst at Hedgepoint Global Markets.

He continues: “It is still too early to say, but the days lost were minimal in the second half of December, which allows us to hope that the mills have milled as much as they can, reducing the potential for bisada. Furthermore, if persistent, the lack of rain could lead to weaker sugarcane development.”

A possible reduction in the Brazilian 24/25 harvest could support sugar prices, especially for the July and October 2024 contracts. Although recent variations have occurred with reduced volume, an examination of the behavior of the monthly spread reveals a flattening of the curve between these months.

“This suggests that the market continues to price greater availability, but is already monitoring the conditions of the new Brazilian harvest - the weekly appreciation in March and May was lower than that of the July and October 2024 contracts. If weather conditions remain restrictive to the development of sugarcane, we may see a change in the structure of the future curve”, he projects.

To date, accumulated precipitation data indicates that 2023 has closely tracked the average in crucial sugarcane production areas, except for December. During that month, the index flattened, approaching or falling below forecast levels. This pattern could pose a threat if it continues into January and February.

The sugarcane stem extension stage is particularly susceptible to drought risks, leading to reduced productivity if stressed. Furthermore, water demand during this phase is the highest. Combining the intense heat and the lower precipitation observed to date, the productivity correction may be more pronounced than previously predicted, restricting availability.

“However, please note that the situation is much more comfortable than when compared to the 2021-2022 rainfall pattern, especially given that climate forecasts call for above/near-average rainfall in January and February. We will soon release our updated view, but it is safe to say that we are not talking about a crop failure, far from it, in fact, we are just adjusting expectations that it may not be as big as 23/24”, he concludes. .

In short

A short-term floor of 20c/lb was established after a significant market drop, caused by the realization that Brazil has more raw materials than initially anticipated. Together with the initial estimates for Brazil's 24/25 harvest, it is difficult to believe in a sharp price reaction.

The lack of precipitation and higher temperatures in sugarcane-producing areas pose a threat if the pattern extends into January and February. The stem extension stage of sugarcane is particularly susceptible to drought risks, leading to a reduction in yield if stressed for a long period. While it may signal a reduction in 24/25 expectations, it is far from a crop failure, offering support to prices but not inducing a strong recovery.