Informe Semanal English Version

Sugar Agro-industry Report at 25 May 2009

• Sugar export breaks records

• The concern is protecting local supply

• The bottling companies’ balance

• 2008/2009 Preliminary Harvest Report at 16 May

• Weekly market

In accordance with statistical figures of the US Department of Agriculture (USDA), in April this year the sugar industry had surpassed the total exports of the previous cycle. According to the same institution, from October 2007 to September 2008, Mexico exported 694 thousand tons of sugar to the USA. This figure is slightly inferior to the figure of 712 thousand tons published by both the Mexican Ministry of the Economy and the CNIAA.

The most recent numbers indicate that Mexico exported 268,562 tons sugar at crude value to the USA between October 2008 and April 2009. To obtain this value, the USDA multiplies the total volume of sugar introduced through customs by 1.06. In other words, to agree with the figures of the Mexican customs system, there would be 722,448 tons tel quel sent out of the country in this interval.

As can be seen in the graph above, starting in June/ August 2006, the Mexican sugar export boom took off. We should not take into account exports that were brought on by the emergency caused by Hurricane Katrina in the south and center of the USA in August 2005. As a result of this emergency, Mexico was able to export around one million tons that it had in inventories. Now export activity and processing firms on the USA side of the border will have to wait, given that expected production figures show a domestic production for this harvest of around 5 million tons.

Last week we did an exercise based on this production estimate. We concluded that the final inventories for this cycle would be approximately 835 thousand tons, which narrowly guarantee domestic supply, provided that the harvest starts on time and that temporary sugar exports by various sugar mills in order to take advantage of the price differential and the depreciation of the peso, are re-imported. A similar conclusion was arrived at by the USDA for the 2009/2010 Mexican harvest. Final inventories for this cycle are around 920 thousand tons and Mexican exports for the next sugar campaign will barely reach 150 thousand tons, something that should be emphasized. Last week Zafranet estimated exports to be at 100 thousand tons at the end of the 2009/2010 cycle, with similar inventories to be seen this year.

The total estimated exports by the USDA from Mexico to the USA was lowered to 950 thousand tons from one million at crude value; that is, 893 thousand tel quel, around 35 thousand tons more than the sugar balance estimated by Zafranet. Recently the government asked the sugar industry to make an effort to cancel unnecessary exports and to replace temporary exports as soon as possible. We don’t really know how much could be cancelled, or at least postponed, but even so we consider that there will be enough inventories, however tight, to guarantee domestic supply.

It must be said that not all sectors are in agreement with this. The powerful lobbying by the bottling industry gave corresponding authorities a sugar balance that differs vastly from that published up until now. It is important to take this into consideration. The National Chamber of Transformation Industries (Canacintra), with information for the USDA and the Sugar Information System (SIA), argues that its balance through May shows the following data:

Based on this exercise, and without doubting any of the data, the available amount of sugar (in red) shows a surplus of 42,272 tons and not a deficit of -928,864 tons. This is because in their calculations they did not take into account “Available inventories at 1 January 09”, worth 971,136 tons. In other words, the total supply of sugar for this harvest according to Canacintra is 5,842,272 tons and not 4,871,136 tons as it appears on their balance. This total available supply number differs from our own balance by 450 thousand tons, even if we assume a production of 4.9 million tons and an initial inventory of 1.2 million tons. We can conclude that in spite of everything, the country will end up with 450 thousand tons instead of 835 tons, which means that it is a matter of urgency to first re-import that which was exported temporarily, which could add up to around 220 thousand tons and secondly to postpone agreed upon exports, and finally, most importantly, start the harvest on time, and if possible, begin even earlier.

Otherwise we will see the same scenario that we always see. The Ministry of the Economy will allow greater import quotas here there and everywhere, reacting late to the lobbying pressure, as we have seen in past governments. This benefits the “friends” of Fox, Zedillo, Salinas, Miguel de la Madrid etc, without caring about the sugar industry which, at the end of the day, has to in a profitable way, solve the national security of the sugar supply for industrialists, sugar cane producers and relevant authorities.

2008/2009 Prelimary Harvest Report at 16 May
At 16 May 2009 638,522 hectares (has) of sugar cane had been harvested, around 40 thousand has above that of the previous harvest. As a result of this harvested area, at the present date 41.5 million tons of sugar cane have been industrialized, which figures demonstrates a negative difference of 3.7 million tons as compared to the last harvest. As far as sugar production is concerned, a total of 4.84 million tons was reached – 3.2 million tons of standard grade, 1.6 million tons of refined grade, 1.4 million tons of molasses and 14.5 million liters of alcohol. As in the previous harvest, the La Gloria mill did not report on its alcohol production, which is approximately 26 million liters annually.

The green line indicates that sugar production at 16 May 2009 reached 4.84 million tons, barely three weeks away from the end of the harvest. The magic number was given by the CNPR, as can be seen in red in the graph, and there are doubts as to whether we will even arrive at this insignificant number.

The same as for sugar production, gross crushed sugar cane will battle to arrive at 45 thousand tons, against the 48.3 million tons that were ground in the preceding harvest. The green line shows the trend for real crushing which is demonstrating a too acute vertical drop if compared to the line showing the 2007/2008 crushing trend.

The greatest open areas in the sugar cane field have not corresponded to the increases in either cane or sugar production. The states of Veracruz, Nayarit and San Luis Potosí have opened areas for the sugar cane crops of near to collectively 30 thousand has, while their sugar production has dropped by 21% in San Luis Potosi, 12.5% in Nayarit and 5% in Veracruz. Other states with low production figures with respect to an increase in harvested area are Tamaulipas and Oaxaca. However, states which have both augmented their cane fields and had better sugar crops and production are Tabasco, Morelos, Chiapas and Colima.

As we have said, the close to 40 thousand hectare increase in harvested area with respect to the previous year has not shown a corresponding increase in either sugar cane production or sugar production. At the present date we have a sugar production drop of 7.38%, 357 thousand tons less than the previous harvest, and 3.7 million tons less crushed cane.

Field yield was 10.63 tons of sugar cane per hectare less than in the previous harvest and is also around 500 thousand tons which is what the average drop in sugar production of the current harvest is going to be. Factory yield have on average been favorable and even more when so when the savings of oil derivatives have reached 70.8 million liters to date.

During the week we commented that sugar production has begun to fall little by little. Only 96 thousand tons of sugar were produced in the week 9 to 16 May, 41 thousand tons of refined grade and 54 thousand tons of standard grade, with a negligible grinding of only 786 thousand tons of sugar cane. The other parameters, however, all continue to be positive.

The rainy season is starting early which is good for the next harvest but bad for this one. The state of Puebla continues to head the list in terms of field yield, followed by Morelos. The most productive industrial plants are in Morelos, Puebla and Nayarit. The best sugar cane comes from Morelos followed by Puebla.

To date 40 mills have finished harvesting. Only 14 are still producing. Before the fall in field yield, the 08/09 harvest was reduced by up to one month by various mills and sugar cane zones. A production of at least 200 thousand tons is expected from the remaining factories in order to reach the magic production number of 5 million tons.

This season a large volume of refined sugar has been imported to the USA. Of the total exported between October 2008 and March 2009, around 300 thousand tons has been refined grade. At the beginning of the current harvest a production figure of 1.65 million tons of superior refined was estimated, especially since the Plan de San Luis mill changed its production to refined this year. However, that estimate is not going to be realized, in part due to the generalized production low of the refining mills, but above all because of the accident that occurred at the Tamazula mill, which caused a drop in production of 40 thousand tons. At the present date there is a fall in refined sugar production of the same amount, 40 thousand tons, compared to the previous harvest.

The weekly market
A year ago the average price for a 50kg bulk of sugar in the four main selling points of the country was 258.69 pesos for standard grade and 318.38 pesos for refined quality. One year later, on 22 May 2009, a 50kg bulk could be acquired for an average of 341.25 pesos, an increase of 83.06 pesos, and refined at 397.25 pesos, which is 78.88 pesos more than one year before. This is a lot of money if we take into account that every month an average of 400 thousand tons is sold, of which 65% is standard grade and 35% is refined. In monetary terms, this difference translates to around 653 million pesos per month – highly profitable for sugar cane producers and industrialists.