The Brazilian sugar market during the pivotal July-August 2025 period presented a complex and often contradictory landscape for global participants. This period was characterized by a fundamental tension between a bearish global outlook, dominated by forecasts of a significant supply surplus, and a more nuanced, tightening reality within Brazil itself. Local crop forecasting agency Conab issued downward revisions to its 2025/26 production estimates, citing the persistent negative effects of adverse weather from the previous year, which damaged both sugarcane yields and quality. This internal supply pressure was reflected in the operational data from the Center-South region, where mills aggressively maximized sugar production at the expense of ethanol to compensate for lower agricultural returns, specifically a decade-low level of Total Recoverable Sugar (TRS) in the cane.
This strategic pivot by mills sustained robust export volumes, yet the surge in shipments, compounded by a bumper soy harvest, created severe logistical bottlenecks at key ports, most notably at Santos. The resulting congestion introduced significant delays and hidden costs, complicating the pricing and execution of physical contracts. On the international stage, benchmark futures prices remained volatile, finding a floor in Brazil's rising ethanol prices but capped by the looming prospect of increased exports from a recovering Indian crop. For traders, producers, and buyers, navigating the mid-2025 market required a deep understanding of not just global supply-demand figures, but also the granular realities of Brazil's harvest quality, mill economics, and port-level logistical friction. The market's direction was ultimately dictated by the ability to reconcile the macro surplus narrative with the micro-level challenges facing the world's largest sugar exporter.
The Global Context - A Surplus Narrative Tempered by Regional Realities
The mid-2025 sugar market operated under the shadow of a significant global supply surplus forecast for the 2025/26 marketing year. This bearish sentiment was primarily driven by projections from influential analysts and government agencies, which anticipated a substantial recovery in production from key global players. However, this macro outlook was frequently challenged by more immediate, regional supply concerns, creating a volatile trading environment where long-term fundamentals clashed with short-term risks.
The Great Debate: Surplus or Deficit?
The dominant narrative shaping market sentiment was one of oversupply. Commodities trader Czarnikow, on June 30, projected a global sugar surplus of 7.5 million metric tons (MMT) for the 2025/26 season, the largest such surplus in eight years. This view was strongly supported by the United States Department of Agriculture (USDA), which, in its biannual report, forecasted a record global production of 189.3 MMT, far outstripping projected consumption and leading to a substantial increase in ending stocks. This outlook was predicated on strong production increases in both Brazil and India more than offsetting declines in regions like the European Union.
In stark contrast to this bearish consensus, the International Sugar Organization (ISO) offered a more cautious perspective. While the ISO acknowledged a surplus for the 2023/24 season, it raised its forecast for the 2024/25 global sugardeficitto a nine-year high of -5.47 MMT, signaling a much tighter immediate market. For the 2025/26 season, the ISO projected a marginal global deficit of -231,000 MT, suggesting a market in near-balance rather than one awash with excess supply. This divergence in forecasts created a fundamental uncertainty, with the market torn between the prospect of a future glut and the reality of a tighter current-season balance sheet.
Competitor Watch: India and Thailand
Brazil's strategic position was heavily influenced by the production outlooks of its primary competitors, India and Thailand.
India:The most significant bearish factor on the global stage was the anticipated recovery of India's sugar production. After a poor 2024/25 season, favorable monsoon rains and increased acreage led the USDA and other analysts to project a production rebound of over 25% to approximately 35.3 MMT for 2025/26. The critical variable for the global market was India's export policy. Having restricted exports since 2023 to protect domestic supplies, reports emerged that the government may permit mills to export 2 MMT in the upcoming season. The potential return of this volume to the world market acted as a significant cap on international price rallies.
Thailand:As the world's second-largest exporter, Thailand's output is always a key market factor. Production for 2025/26 was expected to see a modest climb of around 2% to 10.3 MMT. While this adds to global supply, Brazil's highly competitive pricing and reputation for reliability, particularly for high-quality ICUMSA 45, allowed it to maintain a strong competitive advantage in key Asian, Middle Eastern, and African markets.
Demand Signals
Despite the overarching surplus narrative, demand signals in mid-2025 remained robust, providing a crucial floor for prices. China, a perennial major importer, demonstrated strong buying interest, with its July sugar imports surging by 76% to 740,000 MT. Data for July confirmed that China was the leading destination for Brazilian sugar exports. Concurrently, Pakistan entered the market with tenders for 200,000 MT of refined sugar to stabilize its domestic prices, signaling that key importing nations were actively seeking to build inventories.
This dynamic reveals a market that, while anticipating a future surplus, was trading primarily on a "Brazil-centric" risk model. The consistent price rallies observed in response to negative news from Brazil—such as Conab's production downgrades—demonstrate that the market's immediate price discovery mechanism was disproportionately sensitive to the operational realities of the world's largest supplier. With Brazil accounting for approximately 45% of total global sugar exports, any perceived threat to its ability to deliver outweighed the more abstract, long-term forecasts of a global surplus.For traders in July and August 2025, the primary driver of volatility was not the aggregate global balance sheet for the coming year, but the immediate and tangible risks to the ongoing Brazilian harvest.
Brazil's 2025/26 Harvest - A Story of Weather, Yields, and Mill Strategy
The narrative of Brazil's 2025/26 harvest during July and August was one of resilience and strategic adaptation in the face of significant agricultural challenges. While headline production figures remained near record levels, a closer examination of underlying data from government agencies and industry groups revealed a crop under stress, forcing mills to make critical operational decisions to meet their export commitments.
Dissecting the Forecasts: Conab vs. USDA
The two most-watched forecasts for Brazilian sugar production offered slightly different perspectives, with the divergence rooted in their emphasis on agricultural versus industrial factors.
Conab's Position:Brazil's national agricultural agency, Conab, provided a more cautious outlook. In August, it revised its 2025/26 sugar production forecast downward by 3.1%, from an initial 45.9 MMT to 44.5 MMT. This revision was not arbitrary; it was based on a detailed assessment of the lingering damage from the severe drought, excessive heat, and wildfires that plagued the Center-South region in 2024. These adverse weather events had a direct and measurable impact on the crop. Conab reported that average national sugarcane productivity was expected to fall by 2.1% to 75.6 tons per hectare. More critically, the quality of the cane itself was compromised, leading to a 2.8% decline in the Total Recoverable Sugar (TRS) level—the key industry metric for sugar content.
USDA's Position:The USDA maintained a slightly more optimistic forecast of 44.7 MMT. The agency's analysis placed greater weight on the industrial capacity and strategic flexibility of the Brazilian mills. The USDA's forecast was supported by factors such as increased crystallization capacity at the plants and the clear economic incentive for mills to maximize their sugar production mix. This perspective, while valid, appeared to place less emphasis on the fundamental agricultural constraints highlighted by Conab's on-the-ground assessments.
On-the-Ground Reality: UNICA's Bi-Weekly Data
High-frequency production data from the sugarcane industry association, UNICA, provided a real-time view of the harvest's progress and the strategies mills were employing.
Second Half of July:The data for this period validated Conab's concerns about cane quality. Sugar output in the Center-South fell by 0.8% year-on-year to 3.61 MMT. This decline occurreddespitemills diverting a significantly larger share of their crushed cane—54.10%, up from 50.32% in the same period last year—towards sugar production. The implication was clear: the cane's sugar content was so poor that even with a stronger focus on sugar, mills were producing less. UNICA's director confirmed that the TRS level for the harvest was the lowest observed in a decade.
First Half of August:The following two-week period painted a different picture, showcasing the mills' immense operational leverage. Sugar output surged by 16% year-on-year to 3.615 MMT. This remarkable rebound was achieved by pushing the sugar mix to an even more aggressive 55.00%, compared to 49.15% in the first half of August 2024.
Cumulative View:The August surge, however, was not enough to erase the season's earlier deficits. The cumulative sugar output for the 2025/26 harvest in the Center-South through mid-August stood at 22.886 MMT, still down 4.7% compared to the previous year. This cumulative figure provides a more accurate representation of the harvest's overall health than the volatile bi-weekly numbers.
This data reveals that mills were engaged in a "production sprint." Faced with cane of historically poor quality (low TRS), they were forced to process more raw material and dedicate a record share of it to sugar simply to approach the output levels of previous years. This is not a sign of a healthy, robust harvest, but rather a testament to the industrial efficiency being used to compensate for an agricultural deficit. This strategy is also finite; it is heavily dependent on continued dry weather favorable for harvesting and cannot fully overcome a fundamental lack of sugar in the cane.
Furthermore, the strong August production figure, when viewed in isolation, presented a potential "bull trap" for market participants. A trader observing only the 16% year-on-year increase might conclude that Brazil's production issues were resolved, prompting a bearish stance. However, the context of the record-high sugar mix and the still-negative cumulative output suggests the underlying agricultural problem persists. The August data reflected a temporary, albeit powerful, strategic decision by mills rather than a fundamental improvement in the crop's potential.
The Decisive Factor: Sugar vs. Ethanol Parity
The driving force behind the mills' strategy was simple economics. Throughout July and August, attractive international sugar prices, amplified by a favorable USD/BRL exchange rate, offered significantly better returns than selling ethanol into the domestic Brazilian market. This price disparity incentivized the maximization of sugar production, a trend expected to continue through the peak of the harvest, particularly as drier cane is better suited for crystallization. However, this dynamic has a built-in stabilizer. As more sugarcane is diverted to sugar, the supply of domestic ethanol tightens, causing its price to rise. Analysts estimated that ethanol prices were providing an effective price "floor" for sugar futures, equivalent to approximately 16 cents per pound on the NY No. 11 contract. Should sugar prices fall below this level for a sustained period, the economic calculation would flip, prompting mills to shift back toward ethanol production. This would, in turn, reduce the exportable sugar supply, lending support to global prices.
The Brazilian Domestic Market Landscape
While the international export market commands the majority of attention, Brazil's vast domestic sugar market plays a crucial and often predictive role in the overall supply and pricing dynamics. The interplay between local demand, spot prices, and the calculated profitability of exports—known as export parity—is a key determinant of mill strategy and can serve as a leading indicator for shifts in global supply.
Domestic Price Dynamics
During the July-August 2025 period, the Brazilian domestic market exhibited signs of tightness and price volatility. In the key São Paulo spot market, prices for crystal sugar were reported to be rising due to limited availability for prompt delivery, indicating that local demand was robustly competing for a finite supply. Data from August 26th showed wholesale prices for organic crystal sugar in the state of Pernambuco at approximately USD 0.62 per kilogram, equivalent to a strong $620 per metric ton. However, the market was not without fluctuations. The average spot price in São Paulo for July actually registered a 6.3% decline compared to June, suggesting that pricing was sensitive to the pacing of the harvest and the release of new-crop sugar onto the market. This volatility underscores the dynamic balance between ongoing industrial production and immediate consumer and industrial demand within Brazil.
The Export Parity Calculation
For every Brazilian sugar mill, the central economic decision is a continuous calculation of export parity: which sales channel, domestic or international, offers a better net return? This calculation is not static and is influenced by international futures prices, the USD/BRL exchange rate, domestic spot prices, and the costs associated with exporting.
In late 2024, a notable market condition emerged where domestic prices offered a 4.21% higher return than the equivalent export price. This premium was a direct result of the tight local supply and demonstrated that the domestic market is fully capable of outbidding international buyers when conditions warrant. However, the prevailing trend throughout the first half of 2025 shifted decisively in favor of exports. A strong U.S. dollar against the Brazilian Real, combined with elevated international futures prices, made exporting the more lucrative option for the majority of the period.
Historically, Brazilian domestic sugar prices tend to track the world market price, but often with a discount equivalent to the cost of internal freight and logistics to get the product to port. This is a unique feature of the Brazilian market; because its export volume is so large that it effectively sets the global price floor, the world price must, over the long term, cover Brazilian production and logistics costs.
The behavior of the domestic market provides a critical signal for global traders. A sharp and sustained increase in domestic prices relative to export parity, as was briefly seen in late 2024, is a powerful leading indicator of tightening export supply. It signals that mills are finding it more profitable to divert volume to satisfy local demand. This can precede any noticeable change in port shipping lineups or official export statistics, offering an early warning that the availability of sugar for the global market may be contracting. Therefore, sophisticated market participants monitor domestic Brazilian price indicators, such as the Cepea/Esalq index, not just as a measure of local consumption, but as a vital clue to the future flow of sugar onto the world stage.
Export Deep Dive - Port Operations and Volumes (July-August 2025)
The mid-2025 period was a time of intense activity and significant strain on Brazil's export logistics infrastructure. While mills successfully produced and moved large volumes of sugar to the coast, record-breaking throughput at the nation's primary ports led to severe congestion, creating delays that rippled through the supply chain and impacted the cost and timing of deliveries worldwide.
Total Export Picture
Brazil's total sugar exports for July 2025 amounted to 3.58 MMT. This represented a 6% increase from the previous month, June, but was down 5% compared to the record volumes of July 2024. The composition of these exports was heavily weighted towards raw sugar, with 3.13 MMT of VHP (Very High Polarization) sugar and 449,000 metric tons (MT) of refined white sugar being shipped. The primary destination for these cargoes during the month was China, highlighting the continued importance of Asian demand.
The Port of Santos: The Epicenter of Exports
The Port of Santos, which handles approximately 75% of Brazil's sugar exports, experienced an unprecedented surge in activity. In July, the port handled an all-time record of 17.4 million tonnes of total cargo. This massive volume was driven by two main factors: a rush by exporters of various goods to ship to the United States ahead of newly announced tariffs, and a colossal wave of soybean exports from a delayed but large harvest.
While specific, official sugar-only export volumes for Santos in July were not detailed, shipping lineup data provides a clear proxy for activity. A report for the week ending July 23 showed a massive 2.45 MMT of sugar scheduled for loading at Santos. By the week ending August 20, the scheduled volume had moderated but remained substantial at 1.92 MMT.This intense traffic, however, came at a cost. The port was pushed beyond its optimal capacity, resulting in severe congestion. Maritime agents reported that vessels were waiting up to six days for a berth, and the highways leading into the port were choked with thousands of trucks, creating significant inland bottlenecks.
Comparative Port Analysis: Paranaguá and Maceió
Paranaguá:As Brazil's second-most important port for sugar exports, Paranaguá also experienced a record-breaking month. It handled a total of 7.3 million tons of cargo in July. Its sugar operations remained robust, with the late-July lineup showing 640,160 MT scheduled for loading, a figure which increased to 703,510 MT in late August. The port demonstrated its high efficiency in handling large bulk carriers, successfully loading a single vessel with 58,175 MT of sugar destined for the Middle East, a volume significantly above the typical cargo size.
Maceió:Representing the export capacity of the North-Northeast region, the Port of Maceió handles smaller but still significant volumes. The shipping lineup for late July indicated 11,400 MT of sugar was scheduled, while the late-August lineup showed 8,000 MT. These volumes are crucial for servicing specific markets and providing an alternative to the congested southern ports.
Source: Data compiled from Williams Brasil shipping lineup for the week ending July 23, 2025.
The intense congestion observed, particularly at Santos, has profound implications for contract execution and pricing. For buyers operating under Free On Board (FOB) contracts, where they assume risk and cost once the cargo is loaded, port congestion represents a significant and unquantified financial risk. The buyer is responsible for chartering the vessel, and if that vessel is forced to wait idly for six additional days before it can berth, the buyer bears the full cost of that delay in the form of demurrage charges. These charges can amount to tens of thousands of dollars per day, adding a substantial "hidden cost" to the nominal FOB price. This logistical friction means that an experienced trader might find a Cost, Insurance, and Freight (CIF) contract to be more economically viable, as it transfers the risk of port delays back to the seller. Alternatively, a buyer might choose to pay a premium to load at a less congested port like Paranaguá to ensure a more predictable loading schedule and avoid the costly uncertainty of Santos.
ICUMSA 45 Pricing and Contract Structures
The pricing of Brazilian ICUMSA 45 sugar is a multi-layered process, beginning with international futures benchmarks and culminating in a physical price that reflects the specific terms of the trade, including delivery location, timing, and volume. Understanding the distinction between benchmark prices, FOB and CIF terms, and spot versus contract agreements is essential for any market participant.
Benchmark Indicators: NY No. 11 and London No. 5
The foundation of global sugar pricing rests on two key futures contracts. The ICE Sugar No. 11 contract, traded in New York, is the global benchmark for raw sugar and is priced in U.S. cents per pound. The ICE White Sugar No. 5 contract, traded in London, serves as the benchmark for refined white sugar (of which ICUMSA 45 is the highest grade) and is priced in U.S. dollars per metric ton.
During the July-August 2025 period, these markets exhibited considerable volatility. The NY No. 11 contract traded within a range of approximately 16.3 cents/lb to 17.2 cents/lb. Meanwhile, the London No. 5 futures contract for August delivery fluctuated between roughly $460/MT and $497/MT. The price differential between these two contracts is known as the "white premium," and it represents the theoretical margin for sugar refiners.
Physical Price Breakdown: FOB vs. CIF
Physical sugar transactions are governed by Incoterms (International Commercial Terms) that define the responsibilities of the buyer and seller. The two most common terms in the sugar trade are FOB and CIF.
FOB (Free On Board):In an FOB contract, the seller's quoted price includes the cost of the sugar itself and all expenses required to load it onto the vessel nominated by the buyer at the specified Brazilian port (e.g., "FOB Santos"). Once the sugar passes the ship's rail, all further risks and costs, including ocean freight and insurance, transfer to the buyer. A market report from June 2025 cited an average FOB price for ICUMSA 45 in Brazil at$488/MT, a level that aligns closely with the prevailing London No. 5 futures prices at the time.CIF (Cost, Insurance, and Freight):In a CIF contract, the seller's responsibility is extended significantly. The quoted price includes not only the cost of the sugar and loading but also the ocean freight to the buyer's designated destination port and a minimum level of insurance coverage for the voyage. The buyer is responsible for any costs and risks after the vessel arrives, such as import duties and unloading. CIF prices are therefore always higher than FOB prices and vary based on the destination. A price list from July 2025 for Brazilian ICUMSA 45 offered a CIF ASWP (Any Safe World Port) price of$675/MTfor a buyer committing to a 12-month contract.
The Premium for Immediacy: Spot vs. Contract Pricing
The timing and duration of a purchase agreement have a direct impact on the price.Contract Pricing:Mills and major trading houses overwhelmingly prefer to sell on long-term contracts, typically for 12 months, with fixed monthly volumes. These agreements provide revenue stability and allow for efficient logistical planning. In exchange for this commitment, buyers receive preferential pricing. The aforementioned price of$675/MT CIFis an example of such a contract price for a volume of 12,500 MT per month.
Spot Pricing:A spot purchase is a one-time transaction for immediate or near-immediate delivery. These deals carry a significant price premium. This premium reflects the seller's increased costs and risks associated with arranging last-minute logistics, securing vessel space in a tight market, and forgoing the stability of a long-term commitment. The same July 2025 price list quoted a spot price of$705/MT CIF, a premium of $30/MT, or 4.4%, over the annual contract price for the same volume.
This spot premium is more than just a reflection of supply and demand for the sugar itself; it serves as a direct, quantifiable measure of the logistical friction within the Brazilian export system. When a seller must arrange a spot shipment from a congested port like Santos, they face challenges in securing immediate berthing slots, coordinating inland transport on short notice, and finding available vessel capacity. The $30/MT premium is effectively the price tag for overcoming these hurdles. A rising spot premium is therefore a strong real-time indicator that port congestion, vessel availability, and inland logistical challenges are worsening.
Note: Prices are estimated based on market data from July-August 2025. The FOB spot price is an extrapolation based on the observed CIF spot premium. All prices are subject to daily market fluctuations and negotiations. Benchmark London No. 5 futures for the period averaged ~$480/MT.
The Mechanics of Large-Volume Shipments
Exporting sugar from Brazil, particularly the high-grade ICUMSA 45, is a capital-intensive and logistically complex operation centered around large-volume bulk shipments. The entire supply chain, from inland transport to port operations and financial security, is structured to handle standardized cargo sizes efficiently. Understanding the mechanics of these shipments is critical for any prospective importer.
Standard Shipment Sizes and Logistics
The international sugar trade is dominated by bulk shipments in standardized vessel sizes. The most common quantities for transactions are 12,500 MT, 25,000 MT, and 50,000 MT, which correspond to the capacities of Handysize and Supramax/Panamax bulk carriers. While shipments of 100,000 MT are sometimes discussed, they are generally not feasible for sugar due to limitations at both loading and discharge terminals.
The logistical chain for these large volumes involves several key stages:
- Inland Transport:Sugar is transported from the producing mills, primarily in states like São Paulo, to the port via truck or rail. The cost for this inland leg is a significant component of the final price, estimated to be around$40 per metric tonto the Port of Santos.
- Port Loading:The process of loading a bulk vessel is time-consuming and highly dependent on port efficiency. Loading a 12,500 MT cargo typically takes between4 to 7 days, while a larger 50,000 MT vessel can require up to14 daysat berth. These timelines are highly susceptible to weather and the type of port congestion seen in mid-2025.
- Ocean Freight:The cost of the sea voyage is the largest variable in determining the CIF price. It depends on the destination, vessel size, and global freight market conditions. For large sugar orders from Brazil, this cost typically ranges from$30 to $60 per metric ton.
The choice of shipment size has a direct bearing on the per-unit cost of the final product. Ocean freight rates exhibit significant economies of scale; chartering a larger Panamax vessel to carry 50,000 MT results in a lower cost per ton than chartering two smaller Handysize vessels to carry 25,000 MT each. Similarly, many port charges and administrative fees have fixed components, which means they become cheaper on a per-ton basis when spread across a larger volume. Consequently, buyers with the financial capacity and port infrastructure to receive larger shipments (50,000 MT or more) can achieve substantial per-unit cost savings on freight and logistics. The inability to handle these larger volumes at the destination port effectively acts as a financial penalty in the form of higher per-ton shipping costs.
Note: This is an illustrative breakdown based on average costs. The FOB price is based on the June 2025 average. Ocean freight is the midpoint of the estimated range. Insurance is a standard estimate. Actual prices are subject to negotiation and market conditions.
Contractual Security: The Role of SBLC and LC
Given the high value of these transactions, financial security is paramount. Brazilian mills and established trading companies operate in a market flooded with inquiries and must filter for credible, financially sound buyers. To mitigate risk, they mandate the use of robust financial instruments issued by internationally recognized banks, typically those ranked in the global Top 50.
Documentary Letter of Credit (LC or DLC):This is the primary payment mechanism. It is a commitment from the buyer's bank to pay the seller a specified amount upon the presentation of a set of compliant documents. These documents prove that the seller has fulfilled their contractual obligations and typically include the Bill of Lading (proof of shipment), a Certificate of Origin, and a quality inspection certificate from a neutral third party like SGS (Société Générale de Surveillance). The LC protects the seller from the risk of non-payment after the goods have been shipped.
Standby Letter of Credit (SBLC):This instrument functions as a performance guarantee that underwrites the entire contract. It is a "payment of last resort." If the buyer defaults on their obligations under the sales contract (for example, by failing to open the operative DLC in time), the seller can claim payment directly from the buyer's bank against the SBLC.For Brazilian exporters, requiring an SBLC is a standard procedure to ensure they are dealing with a serious counterparty who is ready, willing, and able to execute the transaction. For any new importer, securing these financial guarantees is a non-negotiable prerequisite to entering the Brazilian sugar market.
Market Outlook and Strategic Insights
Synthesizing the production data, logistical pressures, and pricing dynamics from July and August 2025 allows for a forward-looking analysis of the Brazilian and global sugar markets. The outlook is characterized by continued volatility, with several key risks and strategic considerations for market participants.
Forward-Looking Price Analysis
Short-Term (Q4 2025):The market is expected to remain in a state of tension. Prices will likely be caught in a tug-of-war between two opposing forces. On the bearish side, the commencement of the Northern Hemisphere harvests, particularly in India, and the potential release of Indian export volumes will weigh on global futures. On the bullish side, any further downward revisions to the Brazilian crop due to disappointing yields, coupled with the strong price floor provided by the domestic ethanol market, will offer significant support. Logistical premiums, especially for spot cargoes out of Brazil, are anticipated to remain elevated as port systems continue to manage high traffic volumes from both sugar and grain exports.
Long-Term (2026):The market's trajectory in 2026 will be determined by whether the large projected global surplus for the 2025/26 season actually materializes. If India's crop is as large as forecasted and the government authorizes substantial exports, and if early prospects for Brazil's 2026/27 crop point towards a recovery in agricultural yields, a structural downward trend in prices is likely. A Reuters poll of analysts conducted in mid-2025 suggested that the market may have already priced in the shift from a global deficit to a modest surplus, potentially limiting further downside unless production significantly exceeds expectations.
Key Risks for Market Participants
For Buyers:The most immediate and tangible risk is logistical. The severe port congestion witnessed in Brazil highlights the vulnerability of supply chains. Buyers on FOB terms face direct financial risk from demurrage charges and delivery delays. Beyond logistics, price volatility remains a key concern. A sudden weather event in Brazil or an unexpected change in India's export policy could cause sharp price swings, impacting procurement costs.
For Sellers/Producers:The primary market risk is a significant drop in global prices should the large Indian crop come to fruition alongside a large export quota. This would put pressure on margins for unhedged production. A secondary but important risk is currency fluctuation; a significant strengthening of the Brazilian Real against the U.S. dollar would directly erode the profitability of exports, which are priced in dollars but whose costs are incurred in Reais.
Strategic Recommendations
For Traders:The divergence between Conab's and the USDA's production forecasts presents a key source of potential volatility and trading opportunities. Close monitoring of high-frequency data, including UNICA's bi-weekly production reports (with a focus on TRS levels and the sugar mix), Brazilian domestic ethanol prices (as a proxy for the sugar price floor), and port lineup/congestion data from services like Williams Brasil, will provide critical leading indicators of physical market tightness ahead of official government reports.
For Buyers:For those prioritizing budget certainty and risk mitigation, entering into long-term CIF contracts is a prudent strategy. Although the nominal price is higher, it effectively transfers the significant financial and operational risks of port congestion and shipping delays to the seller. For experienced buyers with strong logistics partners who choose to operate on an FOB basis, it is crucial to factor a substantial financial contingency for potential demurrage costs into their pricing models. Furthermore, diversifying the port of origin beyond Santos during peak congestion months, even at a slightly higher FOB price from a port like Paranaguá, could prove to be a cost-effective de-risking strategy.
For Producers:The strategic flexibility of the sugar-ethanol mix remains the most powerful tool for maximizing profitability. Producers should continue to dynamically adjust their production based on the relative returns of each product. Given the uncertainty surrounding global prices in 2026, a disciplined hedging strategy is advisable. Following the precedent where 72.5% of the 2025/26 export volume was already price-fixed by January 2025, producers should look to lock in favorable prices for a significant portion of their anticipated 2026/27 exportable supply to protect against a potential market downturn.
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