In Brazil, domestic demand for sugar-based ethanol has free-fallen since the turn of the year, due to the global coronavirus pandemic restricting fuel demand. However, a weak Brazilian real is providing some margin relief despite limited buying. The market price of refined sugar fell in dollar terms by 22% in the year to mid-April, yet was flat over the same period when denominated in local currency. In the main growing region, accounting for 85% of total domestic output, the sugarcane harvest officially starts in April, although mills sometimes start crushing in March if they anticipate a run on ethanol or sugar prices. However, low sales volumes and thin margins currently dominate the domestic industry and ethanol sales reportedly fell by 20% in the second half of March, while Q2 2020 is looking equally dire.
Some of the larger local players are seeking to mitigate price softness by either increasing raw sugar production at the expense of ethanol, or increasing ethanol storage capacity, in the hope of capitalising on firmer prices down the line. However, increasing storage is not feasible to all companies, particularly those whose credit lines have suffered. Those farmers then face the choice of either delaying harvesting, in the hope of ethanol prices improving, or commence harvesting with a focus on raw sugar exports. Brazilian raw sugar export prices are currently holding up relatively well, compared with ethanol and refined sugar, and some players expect global sugar supply this year to lag demand for the first time in two years. Moreover, the weakness of the real against the dollar provides strong currency-exchange benefits. Indeed, the dollar price of Brazilian raw sugar exports increased by 8% y-o-y during Q1 2020, which translates into a 39% increase when converted into local currency.