BRAZIL: Sugarcane industry is cautious about new investment this season

Published: 07/17/2017, 3:57:45 PM

Brazilian mills in the centre-south region are cautious about new investments this year, due to the sharp drop in sugar and ethanol prices, according to Brazil's Valor Econômico newspaper.

Sugarcane companies are expected to focus investment on plantations, including in the renewal of cane fields and expansion of planted area. 

Raízen Energia announced in the beginning of the current harvest that it would invest between BRL2.1 billion (US$670 million) and BRL2.4 billion (US$760 million) this season. Considering the most pessimistic scenario for sugar and ethanol prices, investment would be practically stable in relation to the last cycle. In the most optimistic scenario, it will represent a 14% growth, lower than the 18% increase in the previous harvest.

In both cases, Raízen in already considering investment in four sugar production projects, which began in the 2016/17 season and ended recently, according to João Abreu, vice president at Raízen.

After acquiring Tonon's mills, Raízen is expected to review its investment targets, to focus on the cane fields of the acquired mills, which are older than the rest of its crops.

Biosev, controlled by Luis Dreyfus Company, plans to invest BRL1.355 billion (US$430 million) in its crop, with a margin of error of BRL90 million (US$28.59 million) upwards or downwards. The most pessimistic prediction would mean a 8% drop from last season, but the most optimistic scenario would be equivalent to a 5% increase. In the past season, the company increased investment by 19% in relation to the prior harvest.

The company might revisit the investment target for the current season to maximize cash generation, according to Rui Chammas, president at Biosev, during a conference call.

Odebrecht Agroindustrial is the only major sugarcane company expected to increase investment in relation to last year. The company should invest BRL640 million (US$203.33 million) this season, up 43% from 2016/17.

But the focus will be on sugarcane plantations, said Alexandre Perazzo, vice president of finance for Odebrecht Agroindustria. Odebrecht Agroindustrial is adding 16,000 hectares of new sugarcane fields and renewing another 62,000 hectares. The company aims to reduce the average age of its fields from 3.2 years to three years. Odebrecht also aims to invest BRL72 million (US$22.87 million) in agricultural equipment and machinery, according to Celso Ferreira, vice president of operations and engineering.

Tereos Açúcar and Energia Brasil plans to increase its investments by 1% to BRL686 million (US$217.9 million). Investment in cane fields will total BRL200 million, but the company will also invest in its cogeneration plant at Cruz Alta Power mill, in Olímpia (São Paulo state), to improve energy efficiency and refinery. 

São Martinho is expected to increase its investment in maintenance by 3%, BRL900 million (US$285.9 million), but will probably reduce investment in expansion and modernization to BRL70 million (US$22.2 million), compared to BRL107.8 million (US$34.25 million) in the past harvest. 

Brazilian mills in the centre-south region are cautious about new investments this year, due to the sharp drop in sugar and ethanol prices, according to Brazil's Valor Econômico newspaper.

Sugarcane companies are expected to focus investment on plantations, including in the renewal of cane fields and expansion of planted area.

Raízen Energia announced in the beginning of the current harvest that it would invest between BRL2.1 billion (US$670 million) and BRL2.4 billion (US$760 million) this season. Considering the most pessimistic scenario for sugar and ethanol prices, investment would be practically stable in relation to the last cycle. In the most optimistic scenario, it will represent a 14% growth, lower than the 18% increase in the previous harvest.

In both cases, Raízen in already considering investment in four sugar production projects, which began in the 2016/17 season and ended recently, according to João Abreu, vice president at Raízen.

After acquiring Tonon's mills, Raízen is expected to review its investment targets, to focus on the cane fields of the acquired mills, which are older than the rest of its crops.

Biosev, controlled by Luis Dreyfus Company, plans to invest BRL1.355 billion (US$430 million) in its crop, with a margin of error of BRL90 million (US$28.59 million) upwards or downwards. The most pessimistic prediction would mean a 8% drop from last season, but the most optimistic scenario would be equivalent to a 5% increase. In the past season, the company increased investment by 19% in relation to the prior harvest.

The company might revisit the investment target for the current season to maximize cash generation, according to Rui Chammas, president at Biosev, during a conference call.

Odebrecht Agroindustrial is the only major sugarcane company expected to increase investment in relation to last year. The company should invest BRL640 million (US$203.33 million) this season, up 43% from 2016/17.

But the focus will be on sugarcane plantations, said Alexandre Perazzo, vice president of finance for Odebrecht Agroindustria. Odebrecht Agroindustrial is adding 16,000 hectares of new sugarcane fields and renewing another 62,000 hectares. The company aims to reduce the average age of its fields from 3.2 years to three years. Odebrecht also aims to invest BRL72 million (US$22.87 million) in agricultural equipment and machinery, according to Celso Ferreira, vice president of operations and engineering.

Tereos Açúcar and Energia Brasil plans to increase its investments by 1% to BRL686 million (US$217.9 million). Investment in cane fields will total BRL200 million, but the company will also invest in its cogeneration plant at Cruz Alta Power mill, in Olímpia (São Paulo state), to improve energy efficiency and refinery.

São Martinho is expected to increase its investment in maintenance by 3%, BRL900 million (US$285.9 million), but will probably reduce investment in expansion and modernization to BRL70 million (US$22.2 million), compared to BRL107.8 million (US$34.25 million) in the past harvest.