Jun 24 / Lívea Coda

Sugar market stalls amid policy uncertainty and bearish fundamentals

"Sugar prices stayed flat last week, with weak fundamentals and selling pressure capping gains. Oil’s rise from Middle East tensions had limited impact on sugar, as Petrobras’ pricing policy restricts ethanol’s upside. The sugar/hydrous parity hit a two-year low, but mills are locked into a high sugar mix for 2025/26. The delayed E30 rollout now expected in July softens ethanol demand, reinforcing a bearish outlook for both markets. With geopolitical risks and policy uncertainty, funds remain cautious, awaiting stronger signals before shifting positions."

Raw sugar prices remained flat, with weak fundamentals and selling pressure limiting any upward movement.
Geopolitical tensions boosted oil futures, but Petrobras’ pricing policy muted ethanol’s response, weakening sugar’s support. There needs to be an actual cost pass-through to induce a stronger response.
Despite sugar/hydrous parity hitting a two-year low, the sweetener remains in advantage. Additionally, mills are locked into a high sugar mix for the 2025/26 season, limiting flexibility.
The ethanol blend transition from E27 to E30 was pushed to July, compared to our initial expectations, easing some of the pressure on ethanol stocks.
With policy uncertainty and geopolitical risks, funds remain hesitant to adjust sugar exposure.

Sugar had another quiet week, with prices moving sideways and no big changes in the market’s fundamentals, which still point to a bearish outlook. Prices have been failing to sustain any gain as each rally attempt is met with selling pressure, ending the week at 16.1 c/lb on June 20, a weekly variation of -0.2%. The market awaits more relevant news, suffering from weakening spreads and no strong signs of demand as the July contract approaches expiry. Even though oil prices rose during the same week (+3%), given the entry of the US in the Israel-Hammas-Iran conflict, it wasn’t enough to lift the market.

Although the sugar/hydrous parity has dropped to its lowest level in over two years, a move that could be seen as somehow supportive for sugar, there are two key factors to keep in mind. First, the market’s reaction was mostly based on expectations, when it comes to the ethanol side of the equation. Under Petrobras’ new pricing policy, any rise in international energy prices doesn’t automatically translate to higher domestic fuel prices. Political decisions play a big role, which means gasoline prices at the pump could limit how much ethanol prices can rise. During the PPI era, when domestic fuel prices closely tracked international markets, the correlation between crude oil and hydrous ethanol (B3) was +56 points. Since the policy ended in May 2023, that correlation has reversed to –65 points, highlighting a significant decoupling—excluding currency effects in this analysis.

Secondly, given how advanced crop fixation is and the already high sugar mix in the 2025/26 season, it’s unlikely that mills in Brazil’s Center-South will alter their production strategy at this point. Even if some states consider shifting, the overall outlook remains favoring a highly sugar-focused season.

Even though ethanol stocks are expected to be tighter than usual, our base case assumed the E27 to E30 transition would take place by June, which hasn’t happened. The market now anticipates a decision around June 25, potentially pushing the E30 rollout to July. This one-month delay affects our anhydrous stock levels expectations, also easing some of the pressure to hydrous as well, making prices less supportive. If the E30 program continues to be postponed, our outlook will become increasingly bearish with each passing month, not only for the fuel market. A lower blend adds even more support to mills decision to keep a sugary mix.

Sugar prices stayed flat last week, with weak fundamentals and selling pressure capping gains. Oil’s rise from Middle East tensions had limited impact on sugar, as Petrobras’ pricing policy restricts ethanol’s upside. The sugar/hydrous parity hit a two-year low, but mills are locked into a high sugar mix for 2025/26. The delayed E30 rollout now expected in July softens ethanol demand, reinforcing a bearish outlook for both markets. With geopolitical risks and policy uncertainty, funds remain cautious, awaiting stronger signals before shifting positions.

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Sugar market stalls amid policy uncertainty and bearish fundamentals

Sugar market stalls amid policy uncertainty and bearish fundamentals

Image 1: Major oil-related headlines versus crude (USD/bbl - left) and hydrous (BRL/cbm - right) correlation

Image 2: Anhydrous stocks (‘000 m³) – Base Case

Image 3: Anhydrous stocks (‘000 m³) – One month delay

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Weekly Report — Sugar

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