Corn ethanol in Brazil - yellow alert for sugar?

Corn ethanol production has grown rapidly in Brazil. To date, the industry’s business model has shown itself to be robust and competitive.

As a result, investment in additional capacity is expected to continue, but the forecast rapid growth has created concerns about a structural oversupply of ethanol in Brazil in the short to medium term.

On the demand side, additional consumption may emerge in several ways: for example, by raising Brazil’s mandatory blend of ethanol in gasoline, through a step change in Brazil’s ethanol consumption resulting from fuel tax reform, and/or due to rising local and global interest in sustainable fuels for aviation and maritime transport. But much of this is a longer-term (2029-2030) prospect, and with the ramp-up in corn ethanol capacity set to be rapid, it may be hard for demand to grow at the same pace in the short to medium term.

This threat of imbalance in the ethanol market creates a yellow alert for the sugar industry, in Brazil and beyond.. An oversupply of ethanol would put ethanol prices under pressure, which could feed through to increased sugar output as Brazil´s mills arbitrage margins on the two products taking sugar and ethanol prices to parity with one another. For 2026, expectations that Brazil´s next (2026/27) cane crop will be large may have already priced in such a scenario.

Looking further ahead, there are of course many reasons why it may not be repeated in subsequent years despite the growth in ethanol supply in Brazil - for example, weather events could adversely impact global sugar production, or an upturn in oil and gasoline prices could provide support for ethanol prices. Nevertheless, it merits attention – any major change in Brazil´s ethanol market could have repercussions for sugar players around the world.