GSX Commodity Market Blast

Our models put cumulative Centre-South sugar production through August 15 at 20.3 MMT, 12.6% behind the three-year average. Cumulative cane crush, however, has reached approximately 366 MMT, only 0.9% behind the three-year average.

With cane availability therefore tracking relatively close to normal levels, the shortfall sits in the sugar mix rather than in cane supply.

Earlier in the season, mills had limited incentive to push the sugar mix materially higher, as ethanol economics remained attractive. However, the recent No.11 rally has made sugar increasingly competitive. With current No.11 prices increasingly favouring sugar, we anticipate the sugar mix moving higher towards 45.4% as of August 15.

The key issue in the short to medium term is how international energy prices flow through Petrobras refinery prices and domestic gasoline prices, ultimately affecting hydrous ethanol competitiveness and the relative return between sugar and ethanol at the mill.

The importance of Brazil's supply response is amplified by tighter conditions elsewhere.

If Brazilian mills materially increase the sugar mix from here, Brazil can bring additional supply to market and cap the rally. If the sugar mix fails to respond materially, No.11 should remain high and potentially rally higher. It would suggest ethanol economics and/or physical constraints are preventing the normal supply response.

The market closed at 18.92 c/lb on Wednesday 17 September (19.90 c/lb high on Friday 11 September), and the recent drawdowns could suggest the sugar tide is beginning to turn. The rally has lost some momentum over the past few sessions, with repeated failures around the recent highs suggesting price may be capped for now and vulnerable to a short-term pullback.