Hedgepoint revises projection for sugar harvest in the Center-South

The commodities market experienced notable challenges last week, influenced mainly by new developments in the ongoing geopolitical tensions. On June 23-24, a ceasefire initiative was announced by US President Donald Trump. The announcement temporarily eased market sentiment, triggering a technical correction in the energy complex as negotiations for a possible agreement continued.

On Monday, for example, crude oil and other energy-related assets fell between 23% and 2%, loosening the support they had provided to other commodity markets. That decline contributed to widespread losses across a range of sectors, including soybeans and corn. Sugar prices, meanwhile, remained relatively steady at around 4c/lb, although the prevailing sentiment continues to reflect a more bearish than bullish outlook.

Regarding more specific events in the sweetener market, reports of light frosts in the Center-South region of Brazil have raised concerns. Although there has been no confirmation of serious events or measurable impacts on sugarcane production, the recent onset of winter increases uncertainty for the future, according to Hedgepoint Global Markets' market intelligence coordinator, Lívea Coda.

“Despite these potential risks, market prices remained largely unaffected, even when combined with the announcement on Wednesday, June 25, regarding the implementation of the E30 ethanol blending mandate, scheduled to take effect on August 1, 2025,” it says.

“While this latest development may be interpreted by some as bullish, as it increases demand for anhydrous ethanol to meet the new blending mandate, most market participants anticipated its implementation earlier in the season, potentially as early as June. Consequently, the perception of a delay in enforcement has in fact contributed to a more comfortable outlook for biofuel inventories,” he added.

Review of sugarcane production estimates

“The recent frost reports caught our attention. May yields were below expectations and now, although winter has just begun, there have already been some light frosts in the Center-South region. Therefore, we decided to review our models and, consequently, our sugarcane expectations,” explains the analyst.

Although the Vegetation Health Index still points to good general conditions in the region, with precipitation levels not much worse than in past seasons, the TCH (tons of sugarcane per hectare) remains below expectations.

For Lívea Coda, this could be a persistent effect of the stress experienced by sugarcane between August and September 2024, which the summer rains were not able to fully reverse. In addition, the risk of future frosts could further challenge the recovery of TCH.

“The latest Unica report made it clear that it will be extremely difficult to match the ATR (Total Recoverable Sugar) levels of the last two seasons. As a result, we have revised our ATR estimate downwards to 139,8 kg/t. Regarding the sugar mix, if the mills maintain the current pace, it is still possible to reach around 51,3% in the season,” he says.

The analyst explains that these adjustments have had a limited impact on Hedgepoint’s projections for ethanol inventory. This is due to the fact that the company’s initial crop estimates assumed the E30 mandate would be in effect in June, rather than the official start in August.

Furthermore, the share of hydrated ethanol in fuel demand (not considering energy equivalence, but total volume) has not been very good. According to ANP data, April volume represented only 38%, a drop of 1 percentage point compared to last year, mostly due to the worsening of the parity at the pump. “As a result, we also revised downward our share of hydrated ethanol in fuel demand expectations for the season, which brings some relief to inventory levels,” he highlights.

On the sugar side, lower cane volume and ATR reduced availability by 700kt, from almost 42,4Mt to 41,6Mt. “This directly affected our export forecast, which we adjusted from 33,4Mt to 32,7Mt for the Center-South,” he says.

Consequently, the surplus available in our trade flows between 2Q25 and 3Q26 fell from around 3,5 million tonnes to 2,8 million tonnes. While the overall outlook remains bearish, this tighter balance suggests that sugar prices could return to levels above 16 c/lb. With a surplus of 2,8 million tonnes and potential weather risks ahead, prices could even recover to above 17 c/lb.

However, according to Lívea Coda, several factors continue to weigh on the potential recovery of sugar. First, crop prospects in the Northern Hemisphere remain favorable, with positive developments reported in India, China and Thailand. Second, market activity remains subdued due to broader risk sentiment.

Third, support from the energy complex is limited, not only due to recent geopolitical developments, but also because its direct influence on the Center-South fuel market is uncertain under Petrobras' new cost-passthrough policy. Finally, last-minute sales have consistently limited price recovery since late May.