Jun 30 / Lívea Coda

Crop Forecast: Sugar Center-South - 2025 06 30

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"Commodity markets faced a turbulent week, with geopolitical tensions and a failed ceasefire attempt. While sugar prices held steady near 16 c/lb, concerns over light frosts in Brazil’s Center-South and lower-than-expected yields, prompted a downward revision in cane estimates. Despite a marginally tighter supply outlook that could support prices, strong Northern Hemisphere crop prospects, weak energy signals, and cautious fund behavior continue to challenge any near-term price recovery."

Center-South crop update: marginally tighter

  • Geopolitical tensions eased, even with a failed ceasefire attempt, triggering a wave of losses across commodities, with energy markets correcting and grains under pressure.

  • Sugar held steady near 16 c/lb, but light frosts in Brazil’s Center-South and lower-than-expected May yields raised fresh concerns.

  • The E30 ethanol mandate, now set for August, came later than expected, easing pressure on biofuel stocks.

  • Cane and TRS estimates were revised down, trimming sugar availability and exports, marginally tightening the global surplus to 2.8Mt.

  • Despite a bearish tone, weather risks and tighter supply could lift sugar prices above 17 c/lb, if the market is able to fight other unencouraging news, such as a healthier Northern Hemisphere.

Image 1: Commodity Price Variation Index (June 1 = 100)

The commodity market experienced notable challenges over the past week, primarily influenced by new developments to current geopolitical tensions. Between June 23 and 24, a ceasefire initiative announced by U.S. President Donald Trump proved unsuccessful. Nonetheless, the announcement temporarily eased market sentiment, prompting a technical correction within the energy complex as negotiations toward a potential agreement continued.


Source: LSEG, Hedgepoint

On Monday 23, for instance, crude oil and other energy-related assets declined between 2 to 4% diminishing the support they had been providing to broader commodity markets. This downturn contributed to widespread losses across various sectors, including soybeans and corn. Sugar prices, meanwhile, remained relatively stable around 16 c/lb, although the prevailing sentiment continues to reflect a more bearish than bullish outlook.

Image 2: Center-South Average Temperature (°C)

Source: Bloomberg, Hedgepoint

In more specific developments within the sweetener market, reports of light frost occurrences in Brazil’s Center-South region have raised concerns. Although there has been no confirmation of severe events or measurable impacts on sugarcane yields, the recent onset of winter heightens uncertainty moving forward. Despite these potential risks, market prices remained largely unresponsive, even when coupled with the announcement on Wednesday, June 25, regarding the implementation of the E30 ethanol blend mandate, scheduled to take effect on August 1, 2025.



Although the latter development may be interpreted by some as bullish, given that it increases the demand for anhydrous ethanol to meet the new blending mandate, most market participants had anticipated its implementation earlier in the season, potentially as early as June, as noted in our previous report (link). Consequently, the perceived delay in enforcement has, in fact, contributed to a more comfortable outlook for biofuel inventories.

The recent frost reports have caught our attention. May’s yields were already lower than expected, and now, even though winter has just started, there have already been some light frosts in the Center-South region. Because of this, we decided to review our models, thus, our cane expectations.

Image 3: Monthly TCH Estimates (t/ha)

Source: CTC, UNICA, Hedgepoint

Even though the Vegetation Health Index still points to generally good conditions in the region, with rainfall levels not much worse than in past seasons, TCH (tonnes of cane per hectare) continues to fall short of expectations. This may be a lingering effect of the stress experienced between August and September 2024, which summer rains were not able to fully reverse. On top of that, the risk of future frosts could further challenge TCH recovery. 

Image 4: Monthly Precipitation vs Average vs Main Crop Development Window (mm)

Taking this into account, and assuming the monthly TCH trend will align more closely with the 15-year average than recent observations, we’ve revised our cane production estimate from 620Mt down to 610Mt. This estimate is still slightly above the market average, reflecting favorable conditions at the start of the season that still allow for a more optimistic outlook, especially given a higher VHI.


Source: UNICA, Hedgepoint

The latest UNICA report made it clear that matching the TRS (Total Recoverable Sugar) levels of the past two seasons will be extremely difficult. As a result, we’ve revised our TRS estimate down to 139.8 kg/t. Regarding the sugar mix, if mills maintain their current pace, it’s still possible to reach around 51.3% for the season.


Image 5: Ahydrous (left) and Hydrous (right) Stocks (‘000 m³)

Source: UNICA, Hedgepoint

These adjustments had a limited impact on our ethanol stock projections. This is because our initial crop estimates assumed the E30 mandate would be in place by June, rather than the official start in August. Additionally, hydrous ethanol’s share in fuel demand (not in energy equivalence) has been underwhelming. According to ANP data, April’s volume accounted for just 38%, a 1 percentage point drop from last year, largely due to worsening pump parity. As a result, we’ve also revised our hydrous share in fuel demand expectations for the season downward, which adds some relief to stock levels.

Image 6: Total Trade Flows (‘000t)

On the sugar side, the lower cane volume and TRS reduced availability by 700kt, from nearly 42.4Mt to 41.6Mt. This directly impacted our export forecast, which we’ve adjusted from 33.4Mt to 32.7Mt for the Center-South. Consequently, the surplus available in our global trade flows between Q2-25 and Q3-26 dropped from about 3.5Mt to 2.8Mt. While the overall outlook remains bearish, this tighter balance suggests sugar prices could return to levels above 16 c/lb. With a 2.8Mt surplus and potential weather risks ahead, prices may even rebound to above 17 c/lb.

Source: Green Pool, Hedgepoint

In the short term, however, several factors continue to weigh on sugar’s potential recovery. First, crop prospects in the Northern Hemisphere remain favorable, with positive developments reported in India, China, and Thailand. Second, market activity remains subdued due to a broader risk-off sentiment. Third, support from the energy complex is limited, not only due to recent geopolitical developments, but also because its direct influence on the Center-South fuel market is uncertain under Petrobras’ new cost pass-through policy. Lastly, last-minute sales have consistently capped price rebounds since the end of May.

Investment funds currently lack strong incentives to shift their positions, and the overall outlook for the 2025/26 season remains bearish. However, there are key risks ahead that warrant close monitoring, most notably, weather conditions in Brazil and the potential for frost events during the winter months.

Crop Update - Sugar and Ethanol

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Gustavo Costa
gustavo.costa@hedgepointglobal.com
www.hedgepointglobal.com

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