Brazil’s sugar giants making output harder to predict

Bloomberg

Brazil’s sugar mills can make the switch into ethanol easier than ever before, making it harder to predict how much sweetener will come from the world’s biggest producer and exporter.
Take the case of Sao Paulo-based Usina Batatais. Just two years ago, no matter how low sugar prices got, the company had no choice but send at least 45 percent of crops into producing the sweetener. Now, after investing in expansion, that number has dropped to about 36 percent for the 2019-2020 season, Luiz Gustavo Junqueira, the group’s commercial director, said in an interview.
The question of the sugar “mix” — that is, how much cane is diverted to biofuel versus sweetener — was among the hottest topics of discussion at a major industry conference in Ribeirao Preto, Sao Paulo state on March 13. With investment in ethanol equipment and storage by millers, there are less limitations on production and they’ll simply go with what’s profitable.
“Sugar and ethanol must fight harder this year in Brazil,” said Franciele Rivero, a Sao Paulo-based analyst at Sopex Group.
At stake for investors is a market that’s turned hugely bearish. In the week ended March 12, hedge funds held a net-short position of 115,049 futures and options, US Commodity Futures Trading Commission data showed.
The figure, which measures the difference between bets on a price increase and wagers on a decline, was the most negative since September. Short only holdings jumped 25 percent.
The bets mean money managers could end up flat-footed if Brazil’s millers decide to produce more ethanol, potentially widening a deficit that some analysts are already predicting for the sugar market. There are signs that’s starting to happen.