After nearly three years of highly profitable sugar prices, Brazil’s sugar-and-ethanol mills are facing a reversal that is set to squeeze margins in the 2026/27 season.
Over the past 12 months, international sugar prices have fallen about 28%, hitting around 14 cents a pound — the lowest level in five years. At that price, sugar is barely covering production costs, even in Brazil, the world’s most competitive sugar producer.
The outlook for ethanol adds to the pressure. Falling oil prices are intensifying competition with gasoline, while a growing supply of corn-based ethanol is also weighing on prices.
According to Lucas Brunetti, an analyst at Itaú BBA’s agribusiness consultancy, the average cost of producing sugarcane-based ethanol is about 2.80 to 2.90 reais a liter. While current ethanol prices remain above that range, they could slip slightly below those levels next year, he said.
The competitive challenge from corn ethanol is evident when costs are compared. Even if ethanol prices fell to 2.60 reais a liter, corn ethanol plants would see slimmer — but still attractive — margins.
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Itaú BBA is already working with a scenario of lower margins for corn ethanol, a development that does not yet pose a problem for corn-based producers but underscores sugarcane’s disadvantage at this stage. “We used to see margins of around 35% in corn ethanol, and now we see something closer to 25%. It’s still a very constructive scenario for the sector,” Brunetti said.
Stronger Balance Sheets
Lower prices will test how well Brazil’s sugar-and-ethanol mills have prepared financially for a period of tighter margins, particularly by improving their debt profiles. On average, companies are entering this phase in far better shape than during the previous downturn in 2016/17.
A survey by consultancy FG/A, conducted for The AgriBiz, analyzed 35 groups representing nearly half of sugarcane crushing capacity in Brazil’s Center-South region. It shows that net debt-to-Ebit fell to 2.7 times at the end of the 2024/25 season, from 3.8 times in 2016/17.
Liquidity has also improved. The current ratio, a measure of a company’s ability to meet short-term obligations, rose to 2.3 times in 2024/25 from 1.8 times in 2016/17.
That reflects a shift in the sector’s debt structure. Nearly a decade ago, 28% of loans and financing matured in the short term. By the 2024/25 season, that share had dropped to 16%.
“Over the past five years, mills have secured longer-term funding at much lower costs than agribusiness as a whole,” said Tadeu Barreto, head of agribusiness at Itaú Asset. “They have become more professionalized and gained access to capital markets earlier than other segments of agriculture.”
