Brazilian Ethanol Boom Threatens Sugar Production

After 3 consecutive seasons in which sugar was highly lucrative and prompted greater production in Brazil, the tables have turned — ethanol is now yielding higher returns than sugar, marking the first time this has happened in over three years. Price parity between the two indicates that ethanol currently holds a premium of around 1 cent over sugar, a gap that widens as sugar prices decline. 

At the same time, Brazil has been boosting ethanol demand through measures such as the E30 program, which increased the ethanol blend in gasoline from 27% to 30%, adding more than 1.3 billion liters to annual demand. To illustrate the scale, the additional 1.3 billion liters of ethanol requires enough cane to produce between 1 and 2 million tons of sugar. 

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Part of this additional ethanol could come from corn, as corn-based ethanol output in Brazil has been expanding in recent years amid low corn prices. Nevertheless, the scale of ethanol demand is already sufficient to impact sugar production. 

There is also the possibility that E30 could evolve into E35 next year, further expanding ethanol consumption. Assuming a 75 L ethanol/ton-cane and 125 kg sugar/tone-cane conversion, an E30→E35 shift (≈+3.3 billion liters of ethanol) would divert roughly 5.5 million tons of sugar-equivalent cane, materially reducing next season’s sugar production. 

Although still just a hypothesis for now, this is an important factor to monitor next year. Notably, Brazil’s Combustível do Futuro law (Law number 14.993/2024) officially raised the mandatory ethanol blend in gasoline to 30% this year, but the text also authorizes regulators to increase this proportion to up to 35%, depending on future technical and market assessments. 

In other words, while the current blend is set at E30, the law explicitly leaves the door open for a potential increase to E35 in the coming years. So far, several Brazilian politicians have expressed interest in pursuing this target. A recent example is Hugo Motta, President of Brazil's “Chamber of Deputies, who stated in Oct 2025 that he will “fight and strive” to raise the ethanol blend in gasoline from E30 (30%) to E35 (35%). 

Notably, this is all happening at a time when ethanol demand in Brazil is rising, supported by strong price competitiveness at the pump. In several major consuming states — including São Paulo, Minas Gerais, Mato Grosso and Paraná — hydrous ethanol prices currently stand between 64% and 69% of gasoline prices (depending on location), well below the 70% threshold that defines economic parity. 

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This means ethanol is already more cost-effective for consumers, encouraging higher consumption and substitution away from gasoline. So ultimately, even if part of the additional supply comes from corn-based ethanol, the expanding consumption base is significant enough to tighten the balance for cane-based ethanol and potentially limit the cane available for sugar production in the next season. 

Given these factors, the key question now is: how much cane will Brazil produce in the years ahead? The size of the cane crop ultimately determines how much ethanol and sugar the country can supply. To address this, we have been conducting extensive crop surveys across Brazil’s Center-South, engaging with thousands of farmers. 

Last survey was conducted in Oct, and the full report – including estimates on the 25/26 and 26/27 crops - can be purchased individually, and it is also included in our Silver Plan subscription [FREE TRIAL HERE]. 

Our latest survey indicates that the current age structure of cane fields in the Center-South points to growing constraints on production potential over the next few seasons. Productivity gains from crop age likely peaked in 23/24 — the record harvest year — and have been gradually declining since. As the crop continues to age, yields are likely to decline, since older cane typically generates less biomass and recovers more slowly after harvesting. 

Looking ahead, there’s still considerable uncertainty in the outlook. Crop age is not the only factor influencing production — acreage, ATR levels, and off-season rainfall also play major roles, all of which were addressed in our survey. So far, early-season rains in October have been favorable, but it remains to be seen how weather conditions evolve in the coming months. 

Ultimately, what can be said with some confidence is that ethanol’s growing competitiveness is a strain on sugar production. How this dynamic evolves will largely depend on political developments in Brazil, which will play a decisive role in shaping the country’s sugar supply capacity in the coming years. 

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