Brazil sugar mills face margin squeeze amid global conflict
Brazil’s sugar and ethanol sector faces margin pressure as rising fuel and fertiliser costs collide with weak sugar and ethanol prices. Higher diesel and input costs are squeezing profitability, forcing mills to cut investments, while volatile markets and lower power revenues add further strain ahead of the 2026–27 season.
The ongoing tensions in the Middle East are adding pressure on Brazil’s sugar and ethanol industry, with higher input costs and weak market prices expected to squeeze margins in the 2026–27 crushing season.
Industry estimates show that sugar production costs had already reached around 15.77 cents per pound last season, with some mills facing costs closer to 17 cents. At the same time, average sugar prices hovered near 15 cents per pound, leaving several producers operating at a loss, Valor International reported.
The situation is expected to worsen in the new season as key inputs become more expensive. Diesel prices in major producing regions have risen by about 23% since the conflict began, increasing the cost of harvesting and transporting sugarcane.
Fertiliser prices have also surged sharply, with some inputs rising by up to 60%. Urea prices, a key component for sugarcane farming, have jumped significantly, while global supply remains heavily dependent on the Middle East.
Experts say the impact of these cost increases will persist even if the conflict eases, as prices may take several months to stabilise.
At the same time, market conditions are offering little relief on the revenue side. Sugar prices have remained volatile and recently dropped sharply, while global supply levels are seen as comfortable, limiting chances of a strong recovery.
Ethanol prices are also expected to remain under pressure, as increased production, including rising output from corn-based ethanol plants, keeps the market well supplied.
Adding to the strain, many mills are earning less from power sales as earlier contracts for electricity generated from cogeneration plants expire, forcing them to sell at lower market rates.
Industry analysts say margins are likely to decline further, with some mills potentially facing losses depending on their cost structures and production mix.
While improved farm productivity could help offset some of the pressure, experts warn that rising costs may lead producers to cut back on investments such as replanting and crop maintenance, which could affect future output.
Overall, the sector is expected to proceed cautiously, with mills likely to slow spending while trying to maintain operations and manage rising costs.
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Source : Chinimandi
