High availability limits the recovery of sugar prices

Raw sugar prices fell sharply in early September, pressured by expectations of greater availability in Brazil and the results of the UNICA reports. Mills favored sugar production over ethanol, contributing to increased supply in the market.

Furthermore, a brighter outlook for the Northern Hemisphere—especially for sugarcane crops in India and Thailand, following good rains this year—increased pressure on prices. As a result, the October raw sugar contract hit a two-month low in the first week of the month, trading at 15,55 cents per pound.

After the lows, raw sugar prices recovered somewhat, with a more favorable price parity for ethanol production in Brazil, especially in the states of Mato Grosso, Mato Grosso do Sul, and Goiás, with the possibility of a reduction in the sugar mix. However, until the end of August, the sugar mix remained favorable. Thus, according to the latest UNICA report, ethanol production reached 2,42 billion liters in the second half of August, with a cumulative total of 18,48 billion liters, a 10% decrease compared to the previous cycle.

Thus, the latest report highlights a greater sugar mix in the country — with a record 55% in the first half of August and a still high mix of 54,2% in the second — which leads Hedgepoint Global Markets to maintain estimates of a 52% mix in the 25/26 harvest, higher than in previous cycles.

Furthermore, TCH data released by the CTC on Monday, September 15, indicated better-than-expected conditions for the second half of the harvest. Although the average yield in August, which was 77,5 t/ha, still represented a 1,6% decrease compared to 2024, the difference compared to the previous harvest is steadily decreasing—the year-over-year difference was 10-11% in May and June, for example.

Sugarcane crushing reached 50,06 Mt in the second half of August, 10,68% higher than the same period last year. According to Hedgepoint Global Markets' analysis, this also reinforces expectations for better-than-expected sugarcane crushing in the second half of the 25/26 harvest, with our total sugarcane crushing forecast for the season at 605 Mt.

Although the biweekly ATR was 149,79 kg/t (-3,89% compared to the same period in 2024), the 54,2% sugar mix sustained production, which reached 3,8 Mt of sugar, +18,2% compared to the previous year. This raised the accumulated total for the 25/26 harvest to 26,76 Mt of sugar, reducing the production deficit compared to the previous harvest from 4,67% to 1,92%. Therefore, Hedgepoint also maintains its total production estimate of 40,9 Mt for the entire cycle.

With a more "comfortable" supply outlook in the coming months, futures prices for the raw material are currently struggling to surpass the 17 c/lb level. However, it's not just the fear of a drop in blending in Brazil that's keeping prices above 15 c/lb—as mentioned previously—but, at these levels, Hedgepoint believes that Chinese import arbitrage is also open. In July, imports from the Asian country totaled 740 tons, setting a record for the period.

With international arbitrage favoring overseas purchases, China is expected to import larger volumes than previously projected, even given strong domestic production and positive prospects for the 2025/26 harvest. According to Hedgepoint Global Markets, the current estimate includes 4,6 million tons of raw sugar and at least 1 million tons of syrup in sugar equivalent. Smuggling may still play a significant role, as seen in previous years.

With Chinese demand likely helping to prevent sharper declines, Hedgepoint analysis estimates futures will remain in the 15-17 c/lb range in the short to medium term, unless new elements alter the fundamentals mentioned above.

Raw sugar prices are trending generally downward. After a sharp drop in early September, near-term contracts are trading in a range of 15 to 17 cents/lb, driven by expectations of good availability in Brazil and improved prospects in the Northern Hemisphere, particularly in India and Thailand.

Although the recent drop in sugar prices has favored ethanol production, expectations for the 25/26 harvest still indicate a greater sugar share, reinforced by the high values ​​reported in recent Unica reports. Furthermore, the latest TCH data in the country highlight a reduction in the productivity gap compared to the previous harvest, reinforcing Hedgepoint Global Markets' previous expectation that the total to be crushed in CS Brasil will be 605 Mt.

With the current blend and ATR levels, this could still mean that 40,9 Mt of sugar will be crushed. On the other hand, with the level at 15 c/lb, Chinese arbitrage is also open and could lead to an increase in imports from the Asian country—as seen in July—preventing raw sugar prices from falling further.