Hydrous prices have rebounded 23% since the lowest point at the start of February;
Values are now closer to last year;
Better ethanol returns could incentivize an early start for some mills;
What are the possible impacts?

Hydrous recovery

Mills Hydrous Sales

Hydrous demand has been record in January and February, totalling 3.5bi litres;
This is unusual for the period since demand tends to slow down as hydrous loses its competitiveness due to the off crop;
However, with max ethanol production mix in 2018/19, stocks entered the off crop period significantly high – helping keep the price parity attractive for the biofuel;
Additionally, Brent prices collapsed from the highs of October pressuring ethanol prices as well.

Esalq Weekly Hydrous Index

Now, after reaching the lowest level in February, hydrous prices recovered to levels similar as last year;
Strong offtake and oil price recovery has helped the biofuel reach 1.87/litre last week;
Hydrous stocks are now tight, which will contribute for the support of hydrous in the short term;

Anticipating the start

Financially distressed mills might be looking to start crushing by next fortnight in order to capture hydrous price levels;
Others (albeit fewer) due to their normal crushing calendar;
Although this couldnhave an impact on overall cane crush figure of 2018/19 (even though it is new season, UNICA counts as old crop) we don’t expect to see additional sugar supply;

Mills in Operation by Fortnight

Due to cane quality andnre-starting the industry, the beginning is always more ethanol oriented;
And over the upcoming weeks could be even more than usual as prices are incentivizing the biofuel production;
The amount of additional supply will pressure ethanol prices;
By how much it will depend on the stability of Brent at around $65/barrel, consumer behaviour (as price parity at the pumps is reaching 70%) and favourable weather.