Brazil : Sugarcane mills turn to ethanol amid low sugar prices
Brazil’s sugar mills in the Center-South region have shifted focus from sugar to ethanol production amid stronger ethanol profitability. Analysts estimate sugar output could drop by up to 2 million tonnes, while ethanol may rise by 1.4 billion litres. The switch, driven by market prices and weather, is tightening sugar supply for 2025/26.
Sugarcane mills in Brazil’s Center-South region “turned the switch” across the board this month and started prioritizing ethanol production and reducing sugar production. This move reversed the priority that had characterized the sector for the past four years. The change is expected to limit the expected sugar supply for the 2025/26 harvest to ensure ethanol supply during the off-season.
Estimates from market sources interviewed by Valor last week indicate that sugar production in the region is expected to fall between 800,000 and 2 million tonnes below the latest estimates, approaching 40 million tonnes. As a result, ethanol production could be 500 million liters to 1.4 billion liters higher than the latest projections.
The shift in the production mix had already been occurring in recent months, but gained momentum in October, almost a month after ethanol became consistently more profitable than sugar even for mills in São Paulo, which tend to bet more on sugar due to its proximity to ports.
“There’s inertia in the sector. Many mills take a while to process. The advantage [in prices] needs to be in favor of one [of the products] for a long time [to stimulate change],” Mauro Angelo, CEO of Alvean, Copersucar’s trading company, told Valor.
A survey of mills by Piracicaba-based consulting firm Pecege obtained by Valor indicates that the week ending August 19th was the peak of the bet on sugar, with 63.3% of sugarcane juice allocated to its production. The percentage began to decline modestly in the following weeks and plummeted on September 23rd, falling to 57.9% in the week ending September 30th.
One of the companies that began changing its mix in August was the Chinese company Cofco. With 17 million tonnes of sugarcane to be crushed this harvest, the company began to invest more in ethanol the same month that the 30% ethanol blend in gasoline went into effect. “In September, we started producing as much ethanol as possible,” said Daniel Pagnani, director of mills at Cofco International. Now the company expects to reduce its projected production for this harvest by 100,000 tonnes, to 1.5 million tonnes, increasing its ethanol production by 65 million liters, to 500 million liters.
Another company that changed its mix in September was São Martinho. With a projected crushing of 22.6 million tonnes in this cycle, the company shifted its mix to produce as much ethanol as possible in the second half of September, according to Fábio Venturelli, CEO of São Martinho. “In September, there was a shift between the ethanol and sugar markets, and we had some room to decide on the volume that we could arbitrate,” he says.
In late September, mills in states that offer tax incentives for ethanol, in Brazil’s Central-West region, also began making this move. And in early October, with ethanol’s advantage consolidated, other companies followed suit. This was the case for many of the mills associated with Copersucar, Raízen, and bp bioenergy, Valor learned. The companies declined to comment on the matter.
In recent weeks, the movement of washouts of sugar export contracts has even increased. Since July, some mills had already been canceling sugar exports, but occasionally. In the last ten days of September, cancellations at Alvean numbered between 130,000 and 140,000 tonnes, according to Mr. Angelo.
Since the harvest began, all estimates indicated that mills would produce as much sugar as possible, as they had invested in production and prices were more favorable. However, as the months passed, harvest yields began to disappoint, and sugar prices began to decline on the New York Stock Exchange. The mills’ outlook, therefore, was to produce less and at a lower price.
In July, sugar contracts reached 15.58 cents per pound, while ethanol was already offering a return of 15 cents per pound. However, at that time, the foreign exchange rate was still above R$5.40 per dollar, which guaranteed a better return in reais. What changed the scenario was the appreciation of the real—in two months, the FX rate fell 5%. “The change occurred because the exchange rate appreciated, and ethanol [prices] spiked much earlier than expected,” explained Mr. Angelo.
The drop in sugar prices has been so steep that it’s no longer covering the production costs of many mills. And this is even in dollars, according to Mr. Pagnani of COFCO. “For us, with a dollarized balance sheet, the price in dollars doesn’t cover the production costs,” he says.
Hydrous ethanol prices in São Paulo began rising in the second half of July and have since increased by 8%, according to CEPEA/ESALQ. Last week, through October 3rd, the price per liter sold by mills was 16% higher than in the same period in 2024.
Another factor favoring the “alcohol shift” at the end of the harvest is the weather. Forecasts indicate that October will be rainier than average, which dilutes the sucrose in the sugarcane. According to an industry executive, mills naturally tend to produce more ethanol in this situation.
But some say they have no intention of changing their plans. This is the case with Tereos, which has seven mills in Brazil and will finish crushing at the end of the month, at least 15 days early. Tereos CEO in Brazil, Pierre Santoul, said that the planned production mix will not change because “the game is already played.” “Our mix will be 78% sugar and 28% ethanol. We may review the percentage next year,” the Frenchman added.
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Source : Valor International
