In a report rolled out Monday, Morgan Stanley’s Latin America Agribusiness analysts Javier Martinez de Olcoz Cerdan, Rodrigo Mugaburu and Lee Jackson looked into the Brazilian sugar market and its prospects for 2015 and 2016.
The experts concluded that, according to their projections, there is downside to the Brazilian Sugarcane Industry Association (UNICA). Consensus estimates for sugar production in 2015/2016 in the Central/South region currently stand at 31-32 million tons. As stated by the note, lower year-over-year total return swap rates and a higher ethanol/sugar mix could represent major headwinds and lead to another year-over-year decay in sugar production.
Sugar Scenarios
Looking Ahead
The experts explained that this deficit should be driven mainly by the decline in “Brazil's output and sugar mix to 7-year lows, as government policies spur the largest YoY increase in hydrous demand since 2008, diverting cane from sugar to ethanol production.”
The firm recommends Cosan SA Industria e Comercio CSAN3 as the best way to play the recovery in the sugar market. Adecoagro SA AGRO is also rated at Overweight.
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