Brazil's crop puzzle: bigger cane, less sugar

• UNICA delays boosted uncertainty in the market, but MAPA has come to the rescue.
• Cane crushing recovered some ground through July’s first fortnight;
• Cane quality and sugar mix remained subdued.
• Sugar output is seen at 39.5 Mt, despite mills' efforts to maximize sugar due to weather conditions expectations.
• Higher prices, but limited upside as Brazil remains a reliable source of sugar.

While the market continues to watch Northern Hemisphere crop development for direction, attention shifted back to Brazil's Center-South over the past week. Delays in Unica's data release have fueled market speculation, while wetter weather prospects have provided some support to bullish sentiment. The week was marked by the publication of Unica's June figures, released with a two-month delay, alongside MAPA's July first fortnight data. Although both sets of figures offered supportive signals, they require careful interpretation. In this report, we assess these results and their potential implications for sugar prices.

UNICA's cumulative figures through July 1 totaled 214.5 Mt of cane and 10.75 Mt of sugar, representing a nearly 4% increase in cane processing and a 12.4% decline in sugar production year-on-year. What explains these numbers?

The season began under a comfortable global sugar trade-flow scenario. Expectations of a recovering 2025/26 Northern Hemisphere crop and a robust 2026/27 season in the Brazilian Center-South pointed to a sizeable global surplus. As a result, the most efficient way to absorb the additional sugar availability was through stronger ethanol demand, incentivized by lower hydrous ethanol prices due to a reduction in sugar mix by the mills – respecting the advantage ethanol was paying over sugar during the time. 

This adjustment materialized, with hydrous prices correcting significantly, as discussed in our previous reports (link). Pump parity has since become highly favorable for the biofuel in key sugar and ethanol-producing states and is increasingly open in states such as Amazonas (NNE), Acre (NNE), Bahia (NNE), and Paraná (CS).

At the same time, a strong El Niño pattern began to emerge, threatening Northern Hemisphere 2026/27 production prospects while also disrupting crushing operations in Brazil's Center-South. This added another layer of uncertainty to the market, particularly as UNICA, the region's most reliable source of crop data, experienced significant reporting delays, leaving market participants with limited visibility on harvest progress and crop performance, and increasing their reliance on MAPA's data as a more timely indicator of crop performance. Therefore, the reported lower crushing volumes in June due to rainfall were already widely expected when the Unica report was published last week.

MAPA's figures for the first half of July, however, provided a more nuanced picture. Cane crushing reached 50.9 Mt, approximately 9% above the five-year average for the period, reinforcing our estimate of a 635.5 Mt Center-South crop. On the other hand, the report was more supportive from a sugar market perspective. Although mills started to maximize sugar production, supported by a sugar premium of roughly 200 points over hydrous ethanol during most of July, the sugar mix remained at 49%, below the five-year average of 50% for the period. In addition, Total Recoverable Sugar (TRS) stood at 134.6 kg/t, around 4% lower year-on-year. This indicator suggests limitations to final cane quality and, consequently, sugar output. We currently estimate Center-South sugar production at 39.5 Mt, a level that would constrain exports and provide support to prices. These results are attributed to higher precipitation levels.

Excessive rainfall, combined with warm temperatures and limited sunlight, shifts the cane's physiological focus from accumulating sucrose to vegetative growth. This typically results in lower sugar concentration and higher fiber content, reducing sugar extraction efficiency, besides disrupting harvesting activities. These concerns were among the key drivers behind last week's price rally and support the potential for a higher trading range moving forward.

Nevertheless, while some Center-South cane may remain unharvested and carry over into the following season, we believe the upside for prices remains limited. Unlike previous periods of tightness driven by simultaneous crop disappointments in both Brazil and the Northern Hemisphere, Brazil is still expected to produce more than 600 Mt of cane. This points to a strong crop overall, even if sugar production falls short of its maximum potential. Furthermore, firmer prices could encourage additional switching toward sugar production, a scenario already incorporated into our 2026/27 balance sheet.

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