Jul 7 / Lívea Coda

Sugar slips, ethanol tempts, but bulls fight

  Back to main blog page

"The July sugar contract expired at 15.48 c/lb on June 30, pressured by weak receiver interest and poor-quality sugar, which led to a low delivery volume of 45kt. This bearish expiry overshadowed a potentially bullish UNICA report showing weather-related disruptions and low ATR, while TCH results also disappointed. Post-expiry, sugar prices struggled, raising concerns about diversion to ethanol, especially in Goiás and Mato Grosso, though logistical and contractual constraints limit flexibility. Ethanol’s recent premium stems more from sugar’s price drop than biofuel strength, with inventories stable and demand soft. Despite a bearish outlook, tight global stock-to-use ratios and recent bullish signals, like Pakistan’s 500kt import quota and lower EU crop expectations, helped prices rebound to 16.37 c/lb, easing parity concerns in key regions like São Paulo."

Sugar slips, ethanol tempts, but bulls fight

  • The July sugar contract expired at 15.48 c/lb, weighed down by weak receiver interest and poor-quality sugar, leading to low delivery volume.

  • Despite a bearish expiry, the UNICA report showed weather-related crushing disruptions and low ATR, though strong sugar mix.

  • Ethanol premium over sugar improved in Goiás and Mato Grosso, but logistical constraints and existing contracts limit any major shift in Center-South’s aggregated sugar mix.

  • Ethanol’s advantage came from falling sugar prices rather than fundamentals from its own market, with inventories stable and hydrous sales trailing last year.

  • Late-week buying interest, Pakistan’s 500kt import quota, and lower EU crop expectations helped sugar rebound to 16.37 c/lb.

The July sugar contract expired at a settlement price of 15.48 c/lb on Monday, June 30, with long positions ultimately losing ground as receiver interest faded. According to traders, one of the main drivers behind this behavior was the poor quality of sugar available for delivery, which contributed to the exceptionally low volume, just 888k lots, or 45kt.

Image 1: July Historical Deliveries (‘000t)

Source: ICE, Hedgepoint

This bearish expiry movement offset what could have been a bullish reaction to the latest UNICA report released the same day. The report highlighted a decline in crushing volumes due to weather-related disruptions at the mills and a persistently penalized ATR. While some market participants focused on the strong sugar mix, the report may be interpreted as a warning signal. Additionally, TCH results shared on their platform came in below expectations, a topic we addressed in our previous report where we revised our crop estimates (link).

In the sessions following the expiry, sugar struggled to rebound, raising concerns about potential diversion to ethanol production in certain Brazilian states. Although ethanol parity currently appears favorable in states like Goiás and Mato Grosso, sugar prices would need to remain at these low levels for a sustained period before other regions consider switching. Even in Goiás and Mato Grosso, where ethanol is reportedly paying a premium over sugar, between 150 and 300 pts (c/lb), mix reductions may not be straightforward.

Image 2: Sugar and Hydrous Parity (São Paulo State | c/lb)

Source: Source: Bloomberg, Hedgepoint

First, for many mills, lifting short hedge positions at this point in the crop could be challenging. Most are already committed to physical contracts and logistical arrangements, including freight and terminal obligations, which limits their flexibility. Moreover, exiting hedge positions would require a highly attractive premium to justify the move. While there may still be a small portion of unsold and unhedged sugar, any shift on that volume would still be approached cautiously, with limited impact on the overall sugar mix.

Second, the recent shift in sugar and ethanol parity wasn’t driven by a surge in biofuel performance, but rather by a sharp decline in sugar prices, arguably an overreaction. Ethanol inventories remain relatively stable, and sales have been sluggish. According to ANP data, the share of hydrous in total fuel demand (hydrous plus gasoline, not energy equivalent) is trailing last season’s levels. This may be due to a deterioration in pump parity, even though conditions still generally favor ethanol. As a result, the domestic ethanol market doesn’t present a particularly bullish outlook. Any rebound in sugar prices would likely ease concerns about diversion, even for anhydrous. The E30 decision was delayed beyond expectations, and although stocks are tight, they are not yet alarming.

Image 3: Hydrous Share in Fuel Demand (Hydrous/(Hydrous + Gasoline))

Source: Source: ANP, Hedgepoint


Given the current context, any impact on the sugar mix is likely to be limited. While we’re open to revising our mix projections, we prefer to wait for the next couple of UNICA reports before making any significant adjustments. For now, we kept out view closer to 51.2% and believe that a drop below 50.8% would be a stretch, especially considering that the market consensus at the start of the season was closer to 52%, and that sugar prices should bounce back. In fact, the sweetener has already shown signs of recovery, a move the market had been anticipating after the dip to 15.5 c/lb, which appeared to be an overreaction to the current fundamentals.

Although the broader outlook remains bearish, supported by expectations of a healthy Brazilian CS crop and improving conditions in the Northern Hemisphere, the global stock-to-use ratio remains tight, only rehearsing a recovery. While stock building in key suppliers is possible looking ahead to the 2025/26 cycle, they are still projected to remain below historical averages. This suggests a more supportive environment for prices than the currently observed, even if fundamentals continue to weigh on sentiment. It’s important to remember, though, that trade flows are the primary driver of prices. A projected global sugar surplus of 2.8Mt between the current quarter and Q3 2026, though significant, does not fully justify the recent price levels observed. Any deterioration in Brazil or surprises in the NH could jeopardize this comfort.

Image 4: Stock in Key Producers (Crop Year)

Source: ANP, Hedgepoint


Not surprisingly, the week ended on a more bullish note, with renewed buying interest. Notably, Pakistan approved a 500kt sugar import quota. Meanwhile, the European Commission’s expectations for the 2025/26 EU crop came in lower than expected. Both of which contributed to the 16.37c/lb closing, and some distancing from the ethanol parity, at least in São Paulo, states which accounts for over 60% of cane availability.

Image 5: Global Stock to Use vs Average Prices (Oct-Sep)

 Source: Hedgepoint

In Summary

The July sugar contract expired at 15.48 c/lb on June 30, pressured by weak receiver interest and poor-quality sugar, which led to a low delivery volume of 45kt. This bearish expiry overshadowed a potentially bullish UNICA report showing weather-related disruptions and low ATR, while TCH results also disappointed. Post-expiry, sugar prices struggled, raising concerns about diversion to ethanol, especially in Goiás and Mato Grosso, though logistical and contractual constraints limit flexibility. Ethanol’s recent premium stems more from sugar’s price drop than biofuel strength, with inventories stable and demand soft. Despite a bearish outlook, tight global stock-to-use ratios and recent bullish signals, like Pakistan’s 500kt import quota and lower EU crop expectations, helped prices rebound to 16.37 c/lb, easing parity concerns in key regions like São Paulo.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Thais Italiani
thais.italiani@hedgepointglobal.com
www.hedgepointglobal.com

Disclaimer

This document has been prepared by Hedgepoint Schweiz AG and its affiliates (“Hedgepoint”) solely for informational and instructional purposes, without intending to create obligations or commitments to third parties. It is not intended to promote or solicit an offer for the sale or purchase of any securities, commodities interests, or investment products. Hedgepoint and its associates expressly disclaim any liability for the use of the information contained herein that directly or indirectly results in any kind of damages. Information is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. The trading of commodities interests, such as futures, options, and swaps, involves substantial risk of loss and may not be suitable for all investors. You should carefully consider wither such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgment and/or consult advisors before entering into any transactions. Hedgepoint does not provide legal, tax or accounting advice and you are responsible for seeking any such advice separately.  Hedgepoint Schweiz AG is organized, incorporated, and existing under the laws of Switzerland, is filiated to ARIF, the Association Romande des Intermédiaires Financiers, which is a FINMA-authorized Self-Regulatory Organization. Hedgepoint Commodities LLC is organized, incorporated, and existing under the laws of the USA, and is authorized and regulated by the Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA) to act as an Introducing Broker and Commodity Trading Advisor. HedgePoint Global Markets Limited is Regulated by the Dubai Financial Services Authority. The content is directed at Professional Clients and not Retail Clients. Hedgepoint Global Markets PTE. Ltd is organized, incorporated, and existing under the laws of Singapore, exempted from obtaining a financial services license as per the Second Schedule of the Securities and Futures (Licensing and Conduct of Business) Act, by the Monetary Authority of Singapore (MAS). Hedgepoint Global Markets DTVM Ltda. is authorized and regulated in Brazil by the Central Bank of Brazil (BCB) and the Brazilian Securities Commission (CVM). Hedgepoint Serviços Ltda. is organized, incorporated, and existing under the laws of Brazil. Hedgepoint Global Markets S.A. is organized, incorporated, and existing under the laws of Uruguay. In case of questions not resolved by the first instance of customer contact (client.services@Hedgepointglobal.com), please contact internal ombudsman channel (ombudsman@hedgepointglobal.com – global or ouvidoria@hedgepointglobal.com – Brazil only) or call 0800-8788408 (Brazil only).  Integrity, ethics, and transparency are values that guide our culture. To further strengthen our practices, Hedgepoint has a whistleblower channel for employees and third-parties by e-mail ethicline@hedgepointglobal.com or forms Ethic Line – Hedgepoint Global Markets. “HedgePoint” and the “HedgePoint” logo are marks for the exclusive use of HedgePoint and/or its affiliates. Use or reproduction is prohibited, unless expressly authorized by HedgePoint. Furthermore, the use of any other marks in this document has been authorized for identification purposes only. It does not, therefore, imply any rights of HedgePoint in these marks or imply endorsement, association or seal by the owners of these marks with HedgePoint or its affiliates.

To access this report, you need to be a subscriber.