May 13 / Lívea Coda

Sugar and Ethanol Weekly Report - 2024 05 13

  Back to main blog page

"Ethanol prices could potentially rise to 16.74 c/lb if fuel demand increases and international oil prices remain bullish, but this trend is only expected to occur later in the season – when stocks are consumed."

Ethanol will fight a lost battle

  • Ethanol has struggled to challenge sugar price dominance especially given the record crop, 23/24, that, combined with a slow fuel demand growth, resulted in increased stock levels.

  • Despite weakening fundamentals, sugar continues to pay a significant premium over the biofuel.

  • Hydrous prices faces challenges including Petrobras' pricing policies, fragile demand recovery, and the necessity of prioritizing sugar production in Brazil.

  • Ethanol prices could potentially rise to 16.74 c/lb if fuel demand increases and international oil prices remain bullish, but this trend is only expected to occur later in the season – when stocks are consumed.

  • Despite the bullish trends, biofuel is unlikely to threaten sugar production this season due to contracted sugar positions, and international prices.

It is a truth universally acknowledged, that ethanol has failed to threaten sugar for a while now. The 23/24 season marked a record crop, which, despite its robust sugar volume, also led to the highest ethanol production to date. Coupled with slower-than-expected growth in fuel demand, last season ended with the highest hydrous and anhydrous stock levels. Consequently, it is no surprise that the sweetener continues to pay a significant premium over biofuel (over 500pts). The recently narrowing gap between these products was not due to shifts in the hydrous market but rather a result of weakening fundamentals in the sugar industry. However, there are some interesting trends to monitor regarding the biofuel.

Image 1: Sugar vs etanol considering premium (c/lb)

Source: Bloomberg, Unica, Hedgepoint

The first one is that, with a 2% increase in the Otto Cycle expected in 24/25, ethanol stocks might correct, especially if mills keep their max-sugar plan on track – which is very much likely. Reaching a 51.5%-52% sugar mix means tightening the biofuel supply mid-season. This could mean the gap between the two products can narrow further as the crop advances. But will it threaten sugar? Probably not, at least not this season.

Image 2: Center-South’s Otto Cycle (M m³) and Hydrous expected stocks (‘000 m³)

Source: ANP, SECEX, UNICA, MAPA, Hedgepoint

What prices can ethanol possibly reach going further?

To assess whether prices could rise sufficiently to ensure a more comfortable end-of-season biofuel stock, given a 2% growth in fuel demand, we must start discussing the challenges involved. There are three main challenges:

  • Gasoline prices are being kept artificially low, with Petrobras holding back on transferring international volatility to the domestic market.
  • Ethanol demand recovery is quite recent and fragile.
  • Sugar market is getting more comfortable, but it doesn’t mean that Brazilian production is dispensable.

Imagine that Petrobras passes through all the current import arbitrage, estimated at 0.8 BRL/liter. This would mean that hydrous prices in sugar equivalence would go from 14.6c/lb in the current scenario (A) to 16.61 c/lb, in scenario (B). Increasing the sugar’s ethanol so long forgotten floor by nearly 14%. However, assuming higher fuel demand, this could also trigger a correction in pump parity, as consumers would be more inclined to buy hydrous at the current percentage. If pump parity managed to reach the 70% level, prices could rise to 18c/lb, scenario (C). But note that the latter is highly unlikely.

Image 3: Price scenarios: hydrous does not pose a threat to sugar

Source: Bloomberg, Hedgepoint

Assuming Petrobras' complete cost pass-through is challenging, but a recovery to pump parity is also complicated. When São Paulo (SP) state pump parity reaches 70%, a benchmark used in this study, it means that other key producing states like Minas Gerais (MG) and Paraná (PR) have already lost hydrous competitiveness. Therefore, non-producing regions might have faced demand reductions even earlier. Analyzing ethanol sales further reveals that consumers pay closer attention to the absolute price difference or when ethanol parity is closer to 68% rather than the energetic equivalence of 70%. Last year, for instance, hydrous demand only picked up a while after gasoline’s federal taxes were reinstated. July’s pump parity dropped to 68%, inducing higher demand that only showed more strength by the end of the year when pump parity was closer to 62%. Therefore, the recently recovered biofuel consumption remains fragile and could face reductions before the scenario C level is reached.

Image 4: Pump parity in key producing states (%)

Source: ANP, Hedgepoint

For the next two scenarios, two key assumptions were made. The first one is that given OPEC+ recent efforts to keep oil prices higher, we consider a hike to 100 USD/bbl. At the same time, we assume that Petrobras will continue with the pass-trough lag and correct the arbitrage by only 15% on the new gasoline prices. Having said that, the difference between scenario D and E is that in the first one pump parity remains at the same level, while in E, pump parity is pushed to 70%.

As previously discussed, it appears unlikely that ethanol demand will be robust enough to sustain reaching the 70% level. Other states, both producing and non-producing, are likely to surpass this percentage before São Paulo, with a shift towards gasoline expected at around 68%. Consequently, if international oil prices exhibit bullish momentum, we can anticipate ethanol prices rising to 16.74 c/lb. However, this upward movement would likely only begin when fuel demand starts to draw down stocks, around the middle of the season.

However, the emerging bullish trend, biofuel is not expected to threaten sweetener production. For this season, most of Brazil’s sugar is already contracted, ethanol would, therefore, need to pay a great premium to induce a shift in mills' positions – which is extremely unlikely. Additionally, while the sugar market has experienced a weakening in its fundamentals, with global balance and trade flows shifting towards a surplus, this “comfort” will only materialize if Brazil continues to prioritize sugar production and if the global market sustains prices above the Indian and Brazilian export parity. India’s export parity is known to be closer to 19c/lb, meanwhile, Brazil’s could be shifting from 14c/lb to 16.74c/lb, considering ethanol.

Image 5: Brazilian crystal spread on raw sugar (c/lb)

Source: Refinitiv, Hedgepoint

But ethanol is not alone. Also entering that equation there is the sugar’s domestic market. Currently, to compete with the international market, Brazil’s domestic prices are paying a seasonally high premium. Cepea’s crystal sugar is estimated at 25.8 c/lb with limited supply being reported. According to CEPEA, the 24/25 ongoing crushing persists amid dry weather conditions in São Paulo, with mills prioritizing contract deliveries, reducing availability for the spot market. The premium remains higher than average even with a reportedly lower demand in the past few weeks.

In Summary

Sugar prices have several support levels, ranging from Indian export parity above 19 c/lb to its equivalence with Brazilian ethanol. While we don't anticipate the sweetener’s prices being reduced to match ethanol's, it remains crucial to assess the potential price level of biofuel given the expected increase in demand. Considering all the scenarios discussed, it's conceivable that hydrous will experience a more bullish year; however, Petrobras' new policy and demand's organic cuts could constrain its upward potential. Therefore, a fair level for hydrous could be around 16.7 c/lb.

Weekly Report — Sugar

Written by Lívea Coda
Reviewed by Laleska Moda


This document has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes, without the purpose of instituting obligations or commitments to third parties, nor is it intended to promote an offer, or solicitation of an offer of sale or purchase relating to any securities, commodities interests or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. The trading of commodities interests such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors.  Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgement and outside advisors before entering in any transaction that are introduced by the firm. HPGM and its associates expressly disclaim any use of the information contained herein that directly or indirectly result in damages or damages of any kind. In case of questions not resolved by the first instance of customer contact (, please contact our internal ombudsman channel ( or 0800-878- 8408/ (only for customers in Brazil).

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