Sugar Agro-industry at 15 June 2009
• Sugar cane producers will recover between 650 and 700 million pesos
• Sugar cane timing
• No to double play
• Santos
• 2008/2009 Harvest results up through 6 June
• Weekly market
Between March and April of this year, the average price in the four centers being observed (DF, Guadalajara, Puebla and Toluca) rose almost 40 pesos per 50 kg bulk of sugar, a total of 14 percent. From the start of the pressure exerted by sugar cane producers when they took over storage facilities belonging to the sugar mills in the greater part of the country, the price rose in May this year by 48.50 pesos per 50 kg bulk, an increase of around 17%. As can be seen in the table below, the weighted average price in the four main centers serving as a base for establishing the final settlement will be 295.24 pesos (-) 7.5% to take it to the free on board at the mill price: 273.10, almost two pesos less than the pre-settlement reference price which was used for settlements.
However, as the price has been rising considerably, we can forecast that the final adjustment for the payment of sugar cane will be the weighted average price in the same four centers, but from October 2008 to September 2009 it will reach 290 to 300 pesos, given that the price is expected to maintain an average monthly upswing of 3% in the four centers, which will take it to a price of 380 pesos per 50 kg bulk in September. The earnings of sugar cane producers will be in the region of 650 to 700 million pesos, by no means an ineffectual amount if one takes into account the problems in the sugar cane field. It may even be possible to surpass this figure – it will all depend on the decisions taken around imports. For this exercise we are taking into account the price of exports, which will also be used to determine the reference price for the payment of sugar cane, but international prices have also maintained their upward trend which means that the sugar reference price could vary by a very little.
To sum up, it is a fact that the numbers do not appear to be that positive for sugar cane producers, given the conditions under which the present harvest was undertaken, low sugar prices the first six months of the year, and the brutal fall in sugar cane yield per hectare. Prices could have been affected negatively. What is certain is that sugar prices will be maintained, for which reason the sugar cane payment reference price for the 2009/2010 cycle should not be below 300 pesos per 50 kg bulk free on board at the lab.
Sugar cane timing
Because a total of 62% of the sugar cane field is seasonal, it is important to ensure precise timing so that the following cane harvest demonstrates better results than the present one. This is wholly dependent on climactic conditions. We are saying that we are still on time to invest in the field. The rainy season is upon us and it is vitally important that sugar cane producers have resources for fertilization and are able to apply the necessary supplies in order for the field output to improve. The flow of sugar cane pre-settlements had no problems and it is hoped that the final settlement will be carried out timeously and correctly next June and July and it is also hoped that the federal resources budgeted to support the sugar cane field will be turned over before the start of the rains. Only in this way can we have a guarantee of once again exceeding the 5 million tons of sugar for the next harvest. We will effectively pass from being a sugar exporting country to a sugar importing one.
No to double play
Last week the government called an “out” to the industrialists who were ready to carry out a “double play”, with exporting winning and importing winning as well. Supposedly, strictly speaking, this imported sugar will serve to guarantee domestic consumption and will not be for export to the USA. The truth is, however, that it has been such a good business that it made the US authorities doubt; the same ones who put pressure on the Mexican government to not authorize this import via the sugar companies. Yes to importing but by way of quotas issued in favor of consumer companies. But it cannot be guaranteed that the sugar brought in by the traders to the quota holders will jump the border, given that the qualifying rules are yet unknown. The truth is that there will be a shortage of sugar in both countries and those involved will find the way to carry out the trade. Soft-drink bottlers will have enough supply with domestic sugar given that they are the prime customers of the industry, but if allowed to do so, they are the most greedy to do business.
Santos
Here we are faced with another problem that nobody seems to want to get involved in. The government has returned the mills expropriated from the Santos group, but the final legal settlement is still outstanding. The government ran them for five years and neither the compensation to be paid out nor the amount of profits generated in this interval have yet been established; or rather, they have been partially evaluated but the issue keeps getting pushed aside. It is known that there were around 100 thousand tons of sugar in the group’s inventories on expropriation. On the other hand, this was owed by Santos Group to a sugar financing institute (Financiera Azucarera) and Santos has also accumulated liabilities with other branches of the federal government. These balances could be set off against each other, allowing each party to absorb their own loss or profit respectively. But why has this not been settled? Would the federal government be hesitating to reinstate the whole amount to their previous owners? For the moment the only ones who seem to be putting on pressure to find a solution are the sugar cane producers who, be it “the Mexican way”, managed to ensure a rally in the sugar price. Perhaps this settlement cannot be carried out “the Mexican way” but here is the formula: the government finishes paying off what they owed when they took over the sugar mills from their previous owners, and the new owners (which are in fact the previous ones – the Santos Group), pays everything that is owed to the sugar cane producers. Only in this way will it be profitable for all concerned. Because if not, the government and industrialists will continue to pass the buck. President Calderon has already appealed to the parties responsible to find a solution. Which of the Ministers will be the one to take the first step?
2008/2009 Harvest results up through 6 June
At 6 June 2009 there was a harvested area of 654,939 hectares and an industrialized volume of 42,372.341 tons de gross crushed sugar cane, with a sugar production of 4.946,433 tons. There are only three mills still operating.
At the present date 4.95 million tons of sugar have been produced against production estimates of over 5 million tons. There are only three mills still producing which means that the production total for the 2008/2009 harvest will not pass 4.96 million tons.
There is no way that 43 million tons of sugar cane can be crushed. The previous harvest at the same date crushed 48 million tons and the Mexican field has the capacity to harvest over 50 million tons. All that can be done is to invest and to look after this resource.
Everything is in the red. There were 23 thousand less hectares harvested, 5.7 million tons less crushed cane, 551 thousand tons less sugar produced – a total of 11.14 percent less sugar produced than in the previous harvest.
Worthy of comment at this point of the harvest is the huge fall in production of the Santos Group. As a group, its five mills have produced -114,899 tons less compared to the previous harvest. This is a huge loss of at least 700 million pesos. It is more money than Santos owes to the sugar cane producers.
At the present date we are on the way to having produced 6 million tons less sugar cane than in the previous harvest. This is a lot of money – in the region of 940 million pesos – that will not be recovered. Only by investing in the field could this amount be recovered in the next harvest. In the case of the industrialists, the loss of cash flow respect to the previous harvest is close to 3 thousand million pesos.
From 30 May to 6 June only 18,460 tons of sugar was produced of which 9.6 thousand tons was refined and 8.9 thousand tons was standard grade. A total of 153 thousand tons of sugar cane was crushed. Factory yield has kept up high levels while field yield continues to fall.
In the text above concerning sugar cane timing, we stated that opportune investment in the sugar cane plantations was very important, and that it would make it possible to surpass this harvest of approximately 43 million tons of cane. Historically the sugar cane field has yielded up to 49 or 50 million tons which means that an opportune investment could allow it to reach at least 45 to 46 tons of harvested cane in the next harvest cycle.
Finally, with sugar we are near the 4.95 million ton mark and with sugar cane near the 43 million ton mark. Should production exceed 1.5 million tons of molasses and 14.5 million liters of alcohol, then, added to that produced by the La Gloria mills and not reported, it would add up to around 40.5 million liters.
What is relevant at the end of the harvest are the 563 thousand tons of standard grade sugar less produced in comparison to the previous harvest. There was more special white sugar produced and a little less refined – 35.5 thousand tons. Nevertheless, Tamazula continues to produce and we therefore have no final figure. In fact, the difference in refined sugar production was due to the change from standard to refined sugar production at the Plan de San Luis mill.
Weekly market
Prices have continued to rise. We have forecast that the weighted average in the various markets of the country will reach 380 pesos per 50 kg bulk for standard grade sugar up to September. This will, however, depend on how the federal government manages the question of imports. It is not very clear how it is going to devise its approach to quotas. The issue continues to be delicate in that in previous years those decisions affected the domestic sugar market. When decisions are taken that are not in the interest of the country, a possible excess of imports in response to pressure from private and sectorial interests, or those of friends or family, will not be beneficial to the aim of resolving domestic supply.
There are only a few days left until the end of the harvest and the sugar balance will show a probable deficit of 220 thousand tons. We have commented in this report that if times to invest in the sugar cane field are complied with and if the next harvest starts on time, it will not be necessary to import more than the above-mentioned figure. An exception could be a significant drop in prices which would affect sugar cane producers and industrialists.
