Informe Semanal English Version

Sugar Agro-industry at 8 June 2009

• A ghost in the field: Zapata and Beatriz Paredes

• International sugar extremely expensive

• Sugar balance estimated for 2009/2010

• 2008/2009 Harvest results up through 30 May

• Weekly market

In spite of the speeches of party leaders and candidates to congressmen who have been visiting the different sugar cane zones, the real industry demands are relatively simple: productivity in the field and efficiency in the factories. Without being demagogic. In order to achieve this much more than just speeches will be necessary. For example, the leader of the PRI, Beatriz Paredes, once again appropriating the image of Emiliano Zapata, manipulated by the Institutional Revolutionary Party (the PRI) and National Action Party (the PAN) governments, on her recent visit to the state of Morelos, said before a sugar producing audience at the Emiliano Zapata mill, that “finding myself in this extraordinary region of the state, where the power and social commitment of “Zapatismo” still resounds, I am convinced, in the same way as the mayoral candidate of Jojutla said, that we are going to win in the south of Morelos”. In Jojutla, Beatriz Paredes Rangel spoke out emotionally for her candidates. Undoubtedly she, and not the sugar cane producers, chose them.

“I want to say to the sugar cane producers of the Emiliano Zapata mill, that we are going to enter the fray”. Beatriz reminded them that being head of the CNC “in a great open alliance with the Local Union of Sugar Cane Producers, we will obtain the highest price of the harvest in the history of the sugar cane movement”, in the knowledge that the earnings and conquests of the producers are threatened, she said, within the context of the struggle that the Pan congressmen do not eliminate the Sugar Cane Contract Law, “we had to really struggle to stop them from weakening the mills”.

We think that what she was trying to say was not to weaken the mills but the cane producers; however that contract was substituted for a similar one, one which is in force and protecting the interests of the sugar cane producer. Beatriz: “The government first expropriated the mills, then it gave them back, then it compensated them, then it got them into debt and the ones who are paying are the cane producers,” she said, demanding alternatives, “that they do not tell us that it is impossible, because the possibilities of sugar cane are infinite, not only for producing sugar but for producing feed for the livestock sector, to form part of the ethanol energy chain, of course there are options and we are going to engage them, and that is why we have to win all the districts within Morelos.” She added, “That is why we want some Morelos natives in the Chamber of Deputies, because together we are going to present an initiative to rescue the sugar industry and to utilize sugar cane.”

Not only Beatriz but the majority of the “sugar cane” candidates have been using sugar and ethanol production as a way to win votes. The Federal Government has as a banner the National Program for Sugar Cane (PRONAC) a director who, with a lot of pomp and circumstance, delivered and this with the approval of all the party politicians who seem to be forgotten. Although it appears to be all words and no substance, because not one millimeter has been advanced in that direction, the same as the approach of the “sugar cane” candidates, we can see the main points of this program which to be honest, cost a lot of money and input from legislators and public officials. Even so, the points mentioned here should be used as a banner for candidates to win votes for their parties and in this way try to get them on board. If not, then what are these programs for?

PRONAC proposes in its general objectives to do the following:

1. To complement actions to elevate the level of human, social and patrimonial development of a portion of the 12 million inhabitants in 227 sugar cane producing municipalities in 15 states of the country.

2. Have a better presence in the world of sweeteners, especially in the USA market, increasing and consolidating the investment, as well as more creation of wealth and employment.

3. To assure a sugar supply of quality, which is sufficient, opportune and accessible to all Mexicans, and to sugar-consuming companies in the production chain.

4. Diversity of activity oriented towards consolidating a good supply of biofuels to assist in lessening the negative effect on the environment and implement urgent and necessary measures to look after the different ecosystems.

5. To bring about permanent co-ordination and collaboration with the authorities, government orders, political, economic and social actors, which guarantee certainty and promote harmony, order and respect towards the activity.

Included in the specific objectives of the program and ones which can be read and understood by the candidates of a seat in the Congress of the Union, are to:

- Achieve the consolidation of the sugar cane agro-industry into a strategic sector for regional and national development.

- Satisfy the domestic sugar and derivatives market with quantity, quality and opportunity, through better productivity in field and factory.

- Successfully enter the biofuels market through a wide productive and competitive basis.

- Appropriate unsatisfied sugar demand and that of its derivatives in the US market, based on knowledge of its preferences.

-Successfully enter the biofuels market through a broad productive and competitive base.

-Distribute added value throughout the chain, with a foundation in productive participation, in a just, transparent and honest way.

International sugar extremely expensive
In the course of the year, futures contracts have been on the up. Raw sugar has risen 23.955 but refined sugar quoted in the London futures market has risen from January to the present by 28.84%. These are astonishing figures given the global economic crisis with most countries being in recession. Why have futures prices gone up in world markets? In spite of the fact that economies are in recession, world sugar production has fallen way below expectations and global inventories are very weak, way below forecasts and the outlook of producing countries.

As we saw in the preceding graph, during 2009 prices of futures contract #11 and #5 of crude and refined maintained an upward trend, coming from a lower incline during 2008, when the housing crisis erupted in the USA. The idea that the mills and Mexican companies which temporarily export sugar, taking advantage of prevailing conditions, high prices in the USA market and the peso devaluation, could mean that within this scenario, re-importation could not be the good business that was expected. They sold at a high price but they also bought, and bought at a high price.

The refined sugar market surfaced in an impressive way, and being the market that indicates the price of imports which are carried out by mills and local companies. On average, the sugar already contracted closed at around 435 dollars per ton in the port of origin, plus a commission of around 20 dollars, shown in the upper part of the table. The sugar that will arrive at end June beginning of July will reach a free on board port of destination, Veracruz or Manzanillo, price of 360 to 370 pesos per 50 kg bulk. Nobody wants to sell at cost price. Therefore this sugar in the market would not drop lower than 410 to 420 dollars per 50 kg bulk.

This will be a floor price of refined sugar for July. This ceiling price will be the price at which US businessmen could send sugar to the domestic market and or sellers of high maize fructose could convince soft drink companies to substitute sugar in their products. This price will not be far from 470 to 480 pesos per 50 kg bulk of refined sugar.

The estimated sugar balance for 2009/2010
Recently the US Department of Agriculture (USDA) forecast that Mexico’s 2008/2009 production would reach 5.24 million tons. They estimated the crushing of cane at 45 million tons, 5.1% less than that of the previous harvest. They estimated a production of 5.5 millions tons of crude value for the 2009/2010 cycle, which is more or less equal to 5.28 million tons. In the table below, we update the Mexican sugar balance and the estimate for the following cycle, comparing these with the figures issued by the USDA.

At 7 June we note that national sugar production will not exceed 4.99 million tons, nor the 43 million tons of gross crushed cane. We note that there will probably be enough only for one export of 854 thousand tons, with a total import of 300 thousand tons, between IMMEX and sugar imports that make up those that were previously exported on a temporary basis. The 917.8 thousand tons of sugar which will be in inventories will only be sufficient for two and a half months worth of consumption, and so it is necessary in this short harvest period, from October to December 2009, for at least an additional 400 thousand tons to be produced.

A production figure of 5.2 million tons is forecast for the 2009/2010 harvest, similar to the USDA figure. It is estimated that definitive exports will not be more than 150 thousand tons and similarly with IMMEX imports and the re-importation of sugar on a temporary basis. Sugar consumption could drop slightly in virtue of the high prices while high fructose consumption could rally to up to 800 thousand dry base tons.

2008/2009 Harvest results up through 30 May
At 30 May 2009, just a few days before the end of the 2008/2009 harvest, an area of 651,381 hectares has been harvested, less than the same date in the last harvest, with an industrialized volume of 42,218,947 tons of gross crushed cane – a production of 4,927,972 tons of sugar. To date, six mills are still in operation.

A few days prior to the end of this sugar campaign, 4.93 million tons of sugar has been produced, relatively close to the only unofficial estimate of 5.013 million tons of Carlos Blackaller of the UNC. On our website we have updated our sugar balance based on a production that does not exceed 4.99 million tons.

To date 42.29 million tons of gross sugar cane has been crushed. We have estimated that at most 43 million tons will be crushed in the current harvest. The USDA forecast is 45 million tons. For the next harvest the estimate is 46 million tons given improved weather and fertilizing conditions in the greater part of the sugar cane field.

The state deficit in crushed cane exceeded 5.1 million tons in comparison to the previous harvest. The negative production difference was 492 thousand tons, almost 10% less than in the previous harvest. The harvested area changed compared to the last harvest and with respect to what we have been reporting, to (-) 5 thousand harvested hectares.

Finally, the Zapoapita mill is showing negative numbers while Sta Rosalia, against all predictions, is showing positive numbers. After years of negative numbers, Santa Rosalia has reached a production of 62 thousand tons of sugar, around 17 thousand tons above its previous figure. Although Zapoapita was expected to demonstrate improved numbers, it fell short by 4 thousand tons compared to the previous harvest. Other mills with positive numbers are San Pedro, Tres Valles, La Gloria, El Higo, Cuatotolapan, el Mante and Benito Juarez.

Compared to the last harvest, this harvest fell short by 5.1 million tons of crushed sugar cane and production fell short by almost 500 thousand tons of sugar, 343 thousand tons of molasses and 5 million liters of alcohol. The molasses and alcohol markets are extremely pressured for which reason prices have reached record highs. Molasses is quoted at 170 dollars per ton and alcohol at 11 pesos per liter, although imported produce has begun to enter the country, which means that shortly the price will adjust downwards. The same will happen with molasses because of the probable entry of imports to make up for the lack of domestic supply.

In the week of 23 to 30 May, only 31,770 tons of sugar was produced, of which 8,733 tons was refined and 23 thousand tons was standard grade. 251 thousand tons of sugar cane was crushed. Field and factory variables remained stable and sugar cane yield per hectare rose a few points.

Curiously, in spite of having one of the lowest sugar cane yields per hectare, San Luis Potosi is one the leading states in terms of sucrose from cane, the same level as the state of Morelos. Campeche is also one of the states with the best cane, on a par with Nayarit, Puebla, Jalisco and Michoacan.

With 6 mills in production at the present date, we can comfortably state that they will not produce 4.99 million tons of sugar and nor will they crush more than 43 million tons of sugar cane. They will also not reach a molasses production of more than 1.5 million tons or an alcohol production of more than 40.5 million liters, coming from adding 14.5 million liters to the 26 million produced by the La Gloria mill, which did not issue a report.