Mexico’s cane production was badly impacted by drought in 2019/20.
This meant it was only able to produce very small amounts of sugar, ethanol and molasses.
However, its molasses production should rebound next season as the weather looks favourable, but it will remain a net ethanol importer.

Mexico’s Molasses Production to Rebound

We think Mexico will produce 2.04m tonnes of molasses in 2020/21, up 80k tonnes year-on-year.
This is a 4% increase from last season yet 130k tonnes shy of the 2018/19 record.

The lows of 2019/20 came as Mexico suffered widespread drought, which reduced the amount of cane it was able to harvest.
Fortunately, Mexico’s cane area should recover next season, provided the weather does not disappoint again.
Despite this, some cane was irreparably damaged last season and won’t recover enough to be harvested in 2020/21.
With this, we do not think Mexico’s cane harvest will reach the high seen two seasons back.
However, the Mexican molasses market remains strong, with demand coming from the United States, tequila and mezcal producers, local bakeries and yeast producers.

We currently think Mexico will harvest 55m tonnes of cane in 2020/21, with an average yield of 0.037.

Mexico’s Ethanol Production Stays Low

Despite the rebound in molasses production, ethanol production remains low at 500m litres due to increased domestic and foreign demand.
Mexico’s yearly ethanol demand totals 498m litres, but just 12m tonnes of this came from cane last year.
This was an 11.74% drop year-on-year, and again, was down to Mexico’s reduced cane availability following the drought.

Despite this, Mexico’s ethanol industry is in decline due to the poor returns on offer.
In fact, ethanol margins are almost obsolete as mills that choose to produce ethanol face heavy taxes because the Government raised taxes for products that have a negative impact on health and the environment.
This meant that, last season, there were just three mills producing ethanol directly from the cane they harvested.
Therefore, Mexico only produces around 250m litres of ethanol each year given the expensive nature of the process.

All the other ethanol Mexico requires to satisfy its domestic demand comes from the United States.
This should continue to be the case for the foreseeable future.
In 2018, the Mexican government legalised the use of ethanol blends as gasoline substitutes in all cities except Mexico City, Guadalajara and Monterrey.
As a result, Mexico’s drivers now use high concentrations of ethanol to fill their tanks as a cheaper alternative for gasoline.

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