While Commodities sold off - we made profits // Some relief on the sugar front

The Commodity Report #102

May 8, 2023

The wobbly first four months of the year are over, and it has become easier to detect clear trends in the market. As you can see, our YTD performance has clearly picked up, and we’re confident that we'll continue to clearly outperform the CRB Commodity Index.

Some relief on the sugar front

Consultancy Datagro announced on Thursday that Brazil's center-south region is anticipated to have a sugar output of 38.3 million tonnes in the current season, which began in April. This is a 13.6% rise from the previous harvest, and can be attributed to favorable weather conditions and effective crop management. During the New York Sugar Week, Datagro's analyst Guilherme Nastari predicted that the region will produce 50 million tonnes more sugarcane in 2023/24 compared to 2022/23, resulting in a total crop of 598 million tonnes.

Additionally, Nastari also noted that global consumption is projected to increase by 1.2% in 2023/24, a higher rate than the 0.8% increase observed for 2022/23.

On the same topic StoneX head of sugar analysis, Bruno Lima, said that the forecasted weather phenomenon, El Nino, is not likely to impact Brazil sugar production. According to historical data, he said, the last two strong El Ninos in 2009 and 2016 actually allowed for increased sugarcane crush in Brazil’s center-south.

Argentina has a soybean-crushing problem

During Bunge Ltd.'s first quarter earnings call, CEO Heckman warned that the Argentinian crushing industry is expected to face significant supply shortages due to the projected decrease in raw soybean output for the 2022-23 marketing year. Heckman stated that the crop size is expected to drop from 44 million metric tons last year to 27 million metric tons in the upcoming year, resulting in the need for the rest of the world's crush capacity to make up for the lost volumes of soybean meal and oil from Argentina.

He believes that the crushers will face challenges, particularly in the latter half of the year. As one of the world's largest crushing industries, Argentina's sector processes 38-40 million metric tons of raw soybeans yearly, making the country the leading exporter of soybean meal and oil. Commodity analysts predict that the industry will process less than 30 million metric tons in the 2022-23 marketing year due to a severe domestic supply shortage.

Heckman anticipates that the expected decrease in crushing will support soybean meal and oil prices as a result of tight supply concerns.

Brazil wants to mix more Ethanol into its Fuel

The Brazilian government, led by President Lula, aims to promote the use of biofuels and reduce greenhouse-gas emissions by exploring the possibility of increasing the amount of anhydrous ethanol blended with gasoline sold at gas stations.

Mines and Energy Minister Silveira plans to propose studies that would gradually raise the ethanol-gasoline blend from 27.5% to 30% over several years at the next meeting of Brazil's National Energy Policy Council (CNPE), the country's primary policymaking body for energy.

The CNPE held its first meeting in March and is scheduled to convene again in the latter half of 2023. This follows a recent increase in the volume of biodiesel blended with diesel sold at the pump, from 10% to 12% on April 1, with plans for further increases to 13%, 14%, and 15% in 2024, 2025, and 2026, respectively, according to the Mines and Energy Ministry.

An increase in ethanol-based fuels will automatically lead to more demand of sugar, corn or cellulose.

This week look out for the following:

NFIB Small Business Index on Tuesday
CPI data on Wednesday
PPI data on Thursday
UoM Consumer Sentiment on Friday

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Till next Monday, Lukas

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Disclaimer: All information, views, and opinions provided herein are for informational purposes only and should not be construed or relied upon as investment advice, an offer to sell, or a solicitation for any form of investment. The information contained in this website is the most recent information available to us (except otherwise noted); however, all of the information herein is subject to change without notice. Certain information included in this website is based on data obtained from sources considered to be reliable; however, no representation is made with respect to the accuracy or completeness of such data. All opinions, estimates, and forward-looking statements, including any market forecasts or projections, involve a number of assumptions that may not prove to be valid. Past performance does not guarantee future results.