Insight Focus
Low sugar prices and a strong currency mean ethanol is now the preferred output for cane mills in frontier states in Centre-South Brazil. This comes despite falling ethanol prices today. Ethanol is even attractive in core “sugar states”.
We have been saying that the 2026/27 cane crushing season in CS Brazil will be the most dynamic of the past 4 years, and as such, our initial sugar mix estimate of 48% had a downside risk. So far, UNICA figures have proven our theory, showing a sugar mix at the lowest end since 2022/23. Despite ethanol prices coming down, they persistently offer better returns than sugar – even for some regions in Sao Paulo state.
We have revised our crop estimates, with sugar production now at 39.5 million tonnes – 500 thousand tonnes lower than initially expected.
Gasoline is not the Reason…
With the war in the Middle East, Brent crude oil prices have risen by 30%, consequentially pushing gasoline prices higher. In Brazil, Petrobras has over 80% of the refining market, making it a price maker. Since the war started, attention has focused on whether Petrobras will follow international gasoline prices and adjust domestic gasoline prices higher.
And it didn’t, until last week. However, the readjustment was only possible because the government gave a partial subsidy on gasoline federal taxes – after all, a fuel price increase is not a popular thing to have in a presidential election year…
Petrobras’s increased gasoline prices by BRL 0.48/litre last week, while the tax subsidy was set at BRL 0.44/litre. Meanwhile, Abicom (Brazilian Association of Fuel Importers) puts the domestic gasoline price BRL 1.32/litre below international prices – even after the readjustment.
The rationale was:
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The Bylaw of State Companies of 2016 meant it was unsustainable to keep negative parity on gasoline imports much longer.
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A partial increase was accepted.
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At the same time, to prevent an increase for consumers, a tax subsidy was given of almost the same amount.
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Gasoline remains basically unchanged at the pumps, as does parity.
- There is no upside for ethanol.
Sugar Prices are at Five-Year Lows
As mentioned in our previous report, mills are entering the season with much higher flexibility than in the past 4 years, as they are less hedged/committed.[AZ1]
Sugar prices so far have not incentivized more pricing. While mills had opportunities to price above BRL 2500/tonne last season, pricing opportunities for 2026/27 have been lower and less frequent, with levels below BRL 2000/tonne and below the cost of production.
Additionally, when comparing spot sugar and ethanol parity, it has barely touched 150pts since the start of the season. There is no incentive for mills to focus on sugar production, not even those located nearer the ports.
In our previous estimate[AZ1] , we were already considering frontier states making ethanol while states closer to the ports were close to maximum sugar. This resulted in a 48% sugar mix.
However, despite ethanol prices plummeting 23% since early April, in some regions it is still paying more than sugar.
We have revised our sugar mix estimate from 48% to 47%. And it is important to note that there is further downside risk to this figure. The sugar mix reduction (even combined with a 12 million tonne crush increase) takes 500 thousand tonnes from our previous sugar production estimate. This means a 350 thousand tonnes reduction in global raw sugar availability.
It is not enough to turn the Trade Flow into a balance – much less into a deficit – and therefore we stress that sugar prices do not need to rise unless we see mills turning the key to more ethanol production.
