October 21, 2014

Hot and Dry Weather Impacting Sugarcane in Southern Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The current hot and dry weather in central and eastern Brazil continues to take a toll on the sugarcane crop in the region. The drought is expected to reduce the sugarcane crop in southern Brazil by 50 million tons or about 10%. In the hardest hit areas such as northwestern Sao Paulo, the losses could approach 20%.

The sugarcane harvest in northwestern Sao Paulo is ending during the month of October when normally it would not end until sometime in December. Some sugar mills around the city of Aracatuba in northwestern Sao Paulo have already closed their doors for the season. The reason for the early end is the lack of sugarcane due to the drought.

Not only is the drought impacting this year's crop, it is also impacting the renovation of existing sugarcane fields. The dry weather has reduced the initial growth of sugarcane that was planted during June and July, which in turn could impact next year's production as well. Additionally, the dry weather did not allow the farmers to replant as much sugarcane as they normally would. Therefore, the remaining sugarcane is getting older and as sugarcane ages, the yields start to decline.

The sugar sector in Brazil has been underperforming for a number of years due to low prices for sugar and ethanol which have led to longer term problems for the sector. Since 2010, sugar prices have fallen 40% and domestic ethanol prices are low as well due to the government's efforts to artificially holding down the price of gasoline. The price of ethanol is directly related to the price of gasoline and the government has been holding down the price of gasoline as a way to control inflation. The recent decline in international petroleum prices could make the situation for ethanol in Brazil even worse.

Three years of adverse weather and low prices for sugar and ethanol have taken a toll on the sector. Since 2007, 70 sugar mills in southern Brazil have closed their doors and another 65 are undergoing financial restructuring.