A historic drought and a surge in wildfires is likely to drop sugarcane output in Brazil's central-south in the 2025-26 crop from the previous cycle.
The sector has practically ruled out an early start to the next harvest cycle and expects to begin sugarcane crushing in April 2025.
Organization of sugarcane producers associations Orplana expects the region to produce 582mn metric tonnes (t) the 2025-26 crop, 1.35pc below the 2024-25 estimate of 590mn t.
Dryer weather that punished the region in recent months hindered sugarcane development. Meanwhile, a spate of fires destroyed a portion of sugarcane fields. Damage to plants in different stages of regrowth should result in younger and poorer quality crops in the next cycle.
Orplana estimates that 414,000 hectares of sugarcane and sugarcane regrowth areas were harmed by recent fires.
Even if rainfall normalizes as of October, mills will have to give time for the sugarcane to appropriately grow and develop before the cutting state, according to agricultural consulting firm Datagro's president Plinio Nastari.
Fire damage to plants with 1-5 months of development is likely to cut agricultural and industrial income, Nastari said during a Datagro conference in October.
Sweeter mix in 2025-26
Prices will likely continue to favor sugar output at ethanol's expense in the next crop year, according to market analysts.
Recent investments in equipment for sugar production may finally allow the desired increase in the volume of manufactured sweetener in the central-south in the next cycle.
Analysts expect mills to dedicate 52pc of sugarcane production for sugar, compared with 48pc for ethanol in 2025-26. The projection is the same as initial forecasts for the 2024-25 cycle, which were later overturned because of the wildfires.
The actual production mix will depend heavily on rainfall in the coming months, as 70pc of sugarcane growth occurs in October-February, according to Dutch investment bank Rabobank. It expects the center-south to grind 600mn t of sugarcane in 2024-25 and 580mn t in 2025-26, when sugar is likely to make up 51-52pc of the production mix.
Based on these projections, sugar production in the 2025-26 cycle would total 40.1mn t. Production of sugarcane-based ethanol should reach 23.1mn m³ (398,700 b/d) in 2025-26, 9pc lower than the estimate for the 2024-25 cycle. Corn-based ethanol is forecast to continue rising to 9.3mn m³ in the next cycle from 8mn m³ in the current crop.
Consulting firm Hedgepoint Global Markets projects a sugar mix of about 52pc, assuming weather conditions stay within an average range. Its base-case scenario is of sugarcane crushing at 610mn t in the current cycle and 600mn t in the next, if rain levels meet expectations. Sugar output would total 42mn t, with average total recoverable sugar of 141.7 kg/t.
But crushing projections are bearish, since it might rain less than average, Hedgepoint sugar and ethanol analyst Livea Coda said. Similarly, "excellent" rains would result in higher production, a less likely scenario.
Mills soften debt
Sugar producers may be better positioned to absorb the financial impact of recent fires than in the past, as they have significantly improved their financial health in the last two years.
Brazilian investment bank Itau BBA estimates that the debt per ton of sugarcane from companies in the center-south may reach its lowest level in 10 years in the 2024-25 season.
The bank estimates that the average debt level will fall to R103/t ($17.67/t) in the 2024-25 season and may eventually fall to R86/t in the 2025-26 season, depending on weather conditions and investments.
Mills have gained more access to capital markets and searched more for better structured and longer credit lines in the last two years, Itau BBA said.
By Maria Lígia Barros and Maeli Prado
