Brazilian sugar mills are gearing up to boost their sugar production capacity by up to 10% in the upcoming season starting from April, driven by favorable sugar prices and the availability of cheaper corn for ethanol production.
As the world's largest sugar producer, Brazil is capitalizing on its position amidst a global market influenced by factors such as weather disruptions in competing sugar-producing countries like India and Thailand. Although sugar prices have slightly retreated from their recent peak, they remain historically high, prompting Brazilian mills to expedite expansions or new plant constructions to increase sugar output.
The significant disparity between sugar and ethanol prices, with sugar prices currently standing at 60% higher than ethanol, has incentivized mills to prioritize sugar production. Investments in sugar facilities, such as Jalles Machado's 170 million reais plant and Cerradinho Bionergia's 289 million reais factory, underscore the industry's shift towards sugar.
France's Tereos, operating seven plants in Brazil, plans to allocate a higher proportion of its sugarcane to sugar production in the upcoming season, reflecting a broader trend in the industry. Similarly, many other mills are optimizing their operations to favor sugar production over ethanol.
Despite the increase in sugar production capacity, Brazil is unlikely to surpass its previous sugar production levels due to adverse weather conditions, including below-average rainfall in key sugarcane-growing regions.
Furthermore, the rise of corn-based ethanol production in Brazil, driven by the country's status as the world's leading corn exporter, has reshaped the ethanol landscape. Corn ethanol is increasingly seen as a cost-efficient alternative to sugarcane-based ethanol, leading sugar mills to pivot towards sugar production.
Brazil's robust ethanol consumption, accounting for nearly half of light vehicle fuel use, has historically been met through sugarcane-based ethanol. However, the rapid expansion of corn ethanol production has placed downward pressure on ethanol prices, further incentivizing sugar mills to focus on sugar production.
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