The rise in global energy prices amid the ongoing conflict in the Middle East could prompt Brazilian sugarcane processors to shift more production toward ethanol and reduce sugar output in the upcoming season, analysts said on Monday, Reuters reported.
Raw sugar futures on the Intercontinental Exchange rose by more than 3% on Monday after gains in oil prices. Traders expect lower sugar supplies from Brazil’s Centre-South region, the world’s largest sugar-producing area.
Sugar mills in Brazil have the flexibility to adjust production between ethanol and sugar depending on market prices. When ethanol offers better returns, mills divert more sugarcane to biofuel production instead of sugar. Analysts said ethanol prices are already attractive and could rise further if energy prices remain high.
Arnaldo Correa, managing partner at Archer Consulting, said higher fossil fuel prices generally improve ethanol margins, encouraging mills to allocate a larger share of sugarcane to ethanol production. This shift could reduce the availability of sugar in the global market and support higher prices.
However, analysts noted that one key factor remains uncertain. Brazil’s state-controlled oil company Petrobras, which supplies around 80% of the gasoline in the country, has not yet raised domestic fuel prices despite the recent surge in global oil prices.
According to Brazilian Association of Fuel Importers (ABICOM), gasoline prices in Brazil are currently about 46% below import parity.
Independent sugar analyst Michael McDougall said political factors could be influencing the delay in price increases. He noted that President Luiz Inácio Lula da Silva may want to keep fuel prices stable as he prepares to seek re-election later this year.
Meanwhile, consultancy Datagro had earlier projected that Brazilian mills would allocate about 48.5% of sugarcane to sugar production in the upcoming season, compared with 50.7% in the previous season, even before tensions in the Middle East intensified.
