Mar 16 / Lívea Coda

Petrobras decisions might shift sugar floor

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  • Geopolitical tensions and macro uncertainty increased volatility and reinforced risk premiums across commodities.
  • US February CPI failed to calm markets, as it predated the oil shock and the USD remained firm.
  • Sugar prices spiked early in the week on fund buying and short covering amid Middle East risks and logistical disruptions, then quickly reversed as fundamentals reasserted global oversupply.
  • Looking ahead, a sustained rally in energy could support a higher sugar price floor via costs and via changing the Brazilian fuel dynamics, but this support remains fragile and headline‑driven.

Petrobras decisions might shift sugar floor

Geopolitics and the macroeconomic environment have taken a toll on the commodities market, adding strong volatility and reinforcing a risk premium environment. Even a US February CPI print in line with expectations failed to soothe markets, as it preceded the oil shock, further strengthening the dollar’s resilience. Meanwhile, firmer energy prices have increased expectations that the Federal Reserve will keep rates unchanged at the March 17–18 FOMC meeting, pushing US Treasury yields higher and further supporting the dollar through the interest rate channel.

Figure 1 – Dollar Index vs Raw Sugar

Source: LSEG

During the week, the sugar market experienced a mild roller coaster. Prices surged sharply on Monday (9) as heightened geopolitical risk in the Middle East triggered fund buying and aggressive short covering – a typical response during periods of elevated risk perception. This move was amplified in the sugar market given the record net short positioning reported by the CFTC. As discussed in our previous report, disruptions to maritime routes, particularly through the Strait of Hormuz, pushed oil prices to levels not seen since 2022, supporting the broader commodity complex via higher cost expectations. Sugar was also directly affected by logistical disruptions, as shipments from Brazil and other origins such as Central America and India into the Middle East faced constraints, which proved supportive not only for raw sugar but for the white market as key refineries, including Al Khaleej from Dubai, sought alternative ports. Raw sugar rose 3.5% to 14.6 c/lb during the session. 

Figure 2 – Raw Sugar Speculative Net Position (‘000 lots)

Source: CFTC

However, the rally proved short lived as the market reassessed risk following comments from U.S. President Trump regarding the expected duration of the conflict and as it became clear that the move was largely technically driven. With the underlying fundamentals still pointing to global oversupply, sugar prices resumed their downward trend by Tuesday, reinforcing the market consensus for the year and highlighting the short lived nature of macro driven price shocks in an oversupplied market such as the sweetener’s .

Figure 3 – Raw Sugar Total Trade Flows (‘000t tq)

Source: GreenPool, Hedgepoint

Nevertheless, the sugar price floor could become more supportive going forward if strength in the energy complex persists. Beyond the indirect effects via higher production costs and freight rates, firmer oil-refined product prices may lift domestic fuel in Brazil, where around 15% of gasoline consumption is met through imports. According to the EIA, Brazil’s main gasoline suppliers are the US, India and the UAE. In a scenario of rising RBOB prices, Petrobras is being closely watched by the market, as the company may eventually pass through –if not fully, at least partially – the increase in import costs to the domestic market.

Still, given that 2026 is an election year, Petrobras is likely to delay any adjustment as much as possible. As a result, the duration of the conflict, and, consequently, the persistence of energy market support, becomes a key variable for the sugar market, amplifying the price impact of headlines related to how long the conflict may last as observed Tuesday.

As an exercise, we can evaluate the impact on the sugar floor of three scenarios:

1. Hydrous prices ex-mill considering that Petrobras would not pass-through costs.
2. Hydrous prices ex- mill with no pass-through but considering a pump parity that makes the biofuel more competitive than gasoline in most states.
3. Hydrous prices ex- mill with pass-through and considering a pump parity that makes the biofuel more competitive than gasoline in most states.

The first scenario is straightforward. It is based on current hydrous ethanol prices (off-season), calculated using the latest available pump parity, with gasoline pricing anchored to imported RBOB. Under this framework, hydrous prices in sugar equivalent stand at 17.4 c/lb, which effectively represents the “price target” for sugar to secure first call on mills’ production decisions. In this scenario, with hydrous prices above sugar, a lower sugar mix would be expected. As discussed in a previous study, resolving the global sugar surplus would require the sugar mix to fall to 46.2%; however, operational constraints likely prevent such an adjustment, leading us to a more realistic estimate of 48.6%. Higher ethanol output under this mix would, in turn, pressure ethanol prices lower.

Figure 4 – Petrobras Import Arbitrage History (Paulínia SP)

Source: ANP, Bloomberg, Hedgepoint

To stimulate biofuel demand at the pump, hydrous must become more competitive than gasoline across most states, implying a decline to around 13.5 c/lb ex mill in São Paulo, second case. This level can be viewed as a floor for sugar prices over the season.

However, if Petrobras were to fully pass through higher import costs (estimated current values), our ceteris paribus exercise, third case, suggests that this price floor would rise to 16.2 c/lb. While clearly bullish, such a scenario would be fragile and volatile, as it would rely heavily on supportive external fundamentals rather than structural balance: fundamentals don’t exactly change.

Summary

Geopolitical tensions and a fragile macro backdrop drove volatility and reinforced risk premiums across commodities. In sugar, prices spiked early in the week on fund buying and short covering linked to Middle East risks, higher oil prices, and logistical disruptions, before quickly reversing as the move proved largely technical and fundamentals continued to point to global oversupply.

Looking ahead, sustained strength in the energy complex could provide some support to the sugar price floor via higher costs and Brazilian fuel dynamics, but this support would remain fragile, headline driven, and dependent on the duration of the conflict and Petrobras’ pricing decisions.


Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com


Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com

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