Will Brazil generate more sugar or ethanol this year, or both?

Raina Jain, Venkat Reddy

Apr 12, 2023 • 6 min read

Introduction:

Brazil is known for its tropical climate, beautiful beaches, and vibrant culture, but it is also a major player in the global sugar and ethanol markets.

As the world's largest producer of sugarcane, Brazil has a significant impact on the supply and demand of sugar and ethanol.

The production of sugar and ethanol in Brazil can vary depending on several factors, such as weather conditions, government policies, and market demand.

In general, it is possible for Brazil to produce both sugar and ethanol in a given year, and it is not necessarily an either/or situation.

However, the relative amounts of each may fluctuate depending on various factors. The question on everyone's mind is: will Brazil generate more sugar or ethanol this year, or will it produce both in equal measure?

Let’s have a look at the factors that affect the production of Sugar and Ethanol in Brazil:

Weather conditions:

The weather is a critical factor that can affect the growth and yield of sugarcane, which is the primary raw material for both sugar and ethanol production.

Brazil's tropical climate, with high temperatures and abundant rainfall, is generally favorable for sugarcane cultivation. However, extreme weather events such as droughts or floods can have a negative impact on crop yields.

Market demand: The demand for sugar and ethanol can fluctuate depending on various factors such as economic conditions, consumer preferences, and government policies. For example, if there is an increase in demand for ethanol as a fuel, it could lead to more emphasis on ethanol production in Brazil.

Government policies: The Brazilian government has implemented policies to support the production of ethanol as a renewable energy source. For example, the government has set mandates requiring a certain percentage of ethanol to be blended with gasoline. These policies can influence the relative production of sugar and ethanol in Brazil.

International trade: Brazil is a major exporter of both sugar and ethanol, and global trade conditions can impact production decisions. For example, if international sugar prices are high, it could lead to more emphasis on Brazil's sugar production for export.

Historical Sugar and ethanol Production in Brazil in the last 5 years

In the past five years, Brazil has continued to be a major producer and exporter of both sugar and ethanol.

Production year	Sugar production:	Ethanol production
2017	In 2017, Brazil produced a record-breaking 41 million metric tons of sugar, which was a significant increase from the previous year's production of 36.9 million metric tons.	In 2017, Brazil produced 27.3 billion liters of ethanol, which was a slight increase from the previous year's production of 26.1 billion liters.
2018	In 2018, sugar production in Brazil declined to 29.6 million metric tons due to unfavourable weather conditions and a shift towards ethanol production.	In 2018, Brazil's ethanol production reached a record high of 33.1 billion liters, due in part to favourable market conditions and increased demand for biofuels.
2019	In 2019, sugar production rebounded to 33.8 million metric tons, due in part to better weather conditions.	In 2019, Brazil's ethanol production declined slightly to 31.4 billion liters due to lower sugar prices and unfavourable weather conditions in some regions.
2020	In 2020, sugar production in Brazil was slightly lower at 31.5 million metric tons due to drought conditions in some regions of the country.	In 2020, ethanol production in Brazil was lower at 26.2 billion liters due to the impact of the COVID-19 pandemic on fuel demand.
2021	In 2021, sugar production in Brazil is expected to be around 34 million metric tons, according to estimates from the Brazilian Sugarcane Industry Association (UNICA).	In 2021, ethanol production in Brazil is expected to rebound to around 30 billion liters, according to estimates from UNICA.
2022	Brazil produced approximately 605 million metric tons of sugarcane in 2022.	According to the International Energy Agency, global ethanol production was estimated to be around 111 billion liters in 2022.

So how do you think, the mills decide which will provide the best remuneration between sugar and Ethanol?

Parity between Ethanol and Sugar

Parity between ethanol and sugar is an important concept in the Brazilian sugar and ethanol industry. Essentially, parity refers to the price relationship between these two commodities.

When ethanol prices are high relative to sugar prices, it becomes more profitable for Brazilian mills to produce ethanol. Conversely, when sugar prices are high relative to ethanol prices, mills are more likely to produce sugar.

Several factors can influence the parity between ethanol and sugar, including

Global market conditions:

Prices for both ethanol and sugar are heavily influenced by global supply and demand factors.

For example, if there is a shortage of sugar on the global market, sugar prices may rise relative to ethanol prices, which could encourage Brazilian mills to produce more sugar.

Domestic fuel policies:

Brazil has a long history of promoting the use of ethanol as a fuel for cars, and the government has implemented several policies to support the ethanol industry.

Production costs:

The production costs for ethanol and sugar can vary depending on factors such as weather conditions, labor costs, and energy prices.

When the production costs for one commodity are lower than the other, mills may be more inclined to produce that commodity.

The parity between sugar and ethanol is a key factor that mills in Brazil use to decide which commodity to produce. This parity is calculated by taking the No. 11 sugar price and subtracting the domestic hydrous ethanol price at the No. 11 basis.

When the parity is positive, it means that the price of sugar is higher than the price of ethanol, and it becomes more profitable for mills to produce sugar.

On the other hand, when the parity is negative, it means that the price of ethanol is higher than the price of sugar, and it becomes more profitable for mills to produce ethanol.

This parity is an important tool for mills to use when making decisions about which commodity to produce, and it can have a significant impact on the overall production levels of sugar and ethanol in Brazil.

The sugarcane crop situation in Brazil in the last year

● In the last year (2022), Brazil's sugarcane crop was impacted by a severe drought in some regions of the country, which resulted in lower sugar and ethanol production.

● The drought affected the development and yields of sugarcane plants and also impacted the quality of the sugar and ethanol produced.

● The Brazilian sugarcane industry remains one of the largest and most efficient in the world and has been investing in research and development to improve crop management and mitigate the effects of climate change.

● Sugarcane is a perennial crop, and weather conditions and crop management practices in one season can impact the following season's crop.

● The sugarcane industry is also subject to fluctuations in global market demand, which can affect production and prices.

How are crude oils a factor in the rise in fuel costs?

● Crude oil is a major source of fuel for economies around the world.

● The price of crude oil has a significant impact on the cost of producing and distributing fuel.

● When crude oil prices rise, the cost of fuel production and distribution increases, which can lead to higher fuel prices for consumers.

● Higher fuel prices can impact the economy by increasing the cost of transportation and affecting the cost of goods and services.

● Rising fuel costs can also lead to inflation and reduced consumer spending, which can slow down economic growth.

● Additionally, countries that are net importers of crude oil may be particularly affected by rising crude oil prices, as they must pay more to import the same amount of oil.

Ethanol is also produced from Corn - Corn crop situation and how much is from Corn and Sugarcane?

● Ethanol can also be produced from corn, which is a common practice in the United States.

● The corn crop situation in the US varies from year to year based on weather conditions and other factors.

● In 2021, the US Department of Agriculture (USDA) estimated that the corn crop in the US would reach a record 15.1 billion bushels, up 6% from the previous year, which led to an increase in corn-based ethanol production.

● In Brazil, over 90% of ethanol production comes from sugarcane, while the remaining percentage is produced from corn and other feedstocks.

● The choice of feedstock for ethanol production can vary by country and region, based on factors such as climate, soil conditions, and availability of feedstocks.

● Sugarcane is generally considered to be a more efficient and sustainable feedstock for ethanol production than corn, as it requires less water and energy to produce a gallon of ethanol.

Conclusion:

In conclusion, PriceVision can be a valuable tool for anyone involved in sugar and ethanol production who is looking to stay ahead of the curve when it comes to price forecasting.

As a cutting-edge AI/ML price forecasting tool, PriceVision leverages sophisticated algorithms to analyze a wide range of data, including historical prices, supply and demand data, and agricultural market trends, to provide highly accurate price forecasts.