Brazil: Sugar surplus may lead to increase in ethanol production
Rising global output from Brazil, India, and Thailand is expected to create sugar surpluses through 2027, pressuring prices. Brazilian mills are likely to shift more cane to ethanol to protect margins, using production flexibility and domestic biofuel demand to balance weaker global sugar markets.
A rise in global sugar supplies over the next two seasons is expected to put pressure on international prices and prompt Brazilian mills to increase ethanol production to protect earnings, Click Petróleo e Gás reported.
Forecasts for the 2025/26 and 2026/27 harvests indicate consecutive global surpluses, supported by a recovery in output in Brazil and higher production in India and Thailand. The increase in supply is changing the balance between production and demand and reducing the chances of a sharp rise in prices in the near future.
A report published on February 25 by CNN Brasil said raw sugar futures for March 2027 in New York are trading at around 15 cents per pound, well below the levels seen during the recent period of tight supply. In London, white sugar prices remain above $400 per tonne, reflecting refining and freight costs. However, the overall market trend suggests steady prices with a slight downward bias rather than a new upward cycle.
With sugar prices under pressure, ethanol has become central to planning for Brazilian mills. The country’s sugarcane industry, particularly in the Centre-South region, can adjust how much cane is used for sugar and how much for ethanol. This flexibility allows producers to respond quickly to changes in market conditions.
When sugar prices weaken, mills can direct more cane toward ethanol production to maintain returns. Hydrous ethanol futures traded on B3 for 2026 show softer prices in the short term, with expectations of improvement in 2027. When compared in dollar terms and adjusted for energy value, returns from sugar and ethanol are now relatively close.
This narrowing gap means sugar no longer holds a clear advantage over ethanol, as it did during earlier periods of high global prices. In this environment, increasing ethanol output serves not only as a commercial choice but also as a way to reduce exposure to swings in the energy market.
The sector’s profitability depends largely on three factors: global sugar prices, domestic ethanol prices, and the exchange rate. A weaker Brazilian real can support exports even if international prices decline. In contrast, a stronger currency combined with excess global supply could reduce revenues in local currency terms.
Current futures trends suggest that the market expects stable supply conditions through 2027, with no clear signs of shortages. This outlook is pushing producers to manage their finances carefully and closely monitor economic indicators.
Brazil’s domestic market also plays a key role. The country’s large fleet of flex-fuel vehicles allows consumers to choose between petrol and ethanol based on price, helping absorb higher ethanol output.
Government policy further supports the biofuel sector. Programmes such as RenovaBio set emission reduction goals and create tradable carbon credits, strengthening ethanol’s position in the national energy mix.
If the projected sugar surplus continues over the next two harvests, ethanol is expected to act as a balancing outlet for Brazilian mills, easing pressure on exports and helping the industry adjust to a more well-supplied global market.
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Source : Chinimandi
