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Decreased US corn production in 2019/20 likely to add upward pressure on global sugar price

July 19, 2019

1 mins read

US 2019/20 maize production is forecast down for the third consecutive year by 5% y-o-y to around 347m tonnes due to extraordinary planting delays in the corn belt. Heavy rains and flooding throughout the Corn Belt during spring, particularly in May, have delayed the plantation of maize significantly across the main US producing states. This delay in both plantation and the emergence of the crop brought uncertainties about the yield output for the 2019/20 marketing year. As of 2nd June, the US had planted around 67% of the maize area compared to 96% at this time last year.

Being the second highest ethanol-producing country (after the US) Brazilian sugarcane mills are looking closely at US corn production, as lower production will imply a higher cost of corn-derived ethanol production.

As US ethanol prices on the CBOT (Chicago Board of Trade) skyrocketed by 15% q-o-q in July 2019, Brazilian ethanol is likely to gain in competitiveness on the global market. Currently, the Brazilian ethanol prices on the spot market are still showing a premium compared to the US corn-ethanol; however, this premium decreased substantially during the past few months.

Increasing prices of ethanol have encouraged sugar cane mills to crush the cane toward ethanol, rather than sugar. The production mix for ethanol in the sugarcane harvest in Brazil, according to Conab (Brazilian National Supply Company) already had increased from 54% in 2017/18 to 65% in 2018/19, weighing on sugar supply. Unica (Brazil Union of the Sugar Cane Industry) statistics for 2019/20 (1st April to 1st July) are indicating the continuity of this production mix. This lack of sugar supply on the global market is likely to support prices of sugar on the market exchanges, showing an increase by 7% y-o-y in New-York ICE (Intercontinental Exchange).

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Anais Divanach
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