Even so, the outlook for both markets remains unclear because of the erratic remarks by U.S. President Donald Trump about the conflict in the Middle East, which began a little more than a week ago after the United States and Israel launched attacks on Iran.

For now, analysts say the shock caused by the conflict could keep ethanol and sugar prices from falling in the coming months. That would run counter to earlier expectations.

In Brazil’s domestic market, ethanol prices, which fell in February on expectations that sugarcane crushing would begin earlier, have started to rise this month. The Cepea/Esalq index for hydrous ethanol sold by mills in São Paulo state, excluding taxes, rose 3.13% in the week of March 2-6 from the previous week, to R$2.93 per liter.

Sugar also moved higher on Monday (9). Raw sugar contracts for May delivery rose 3.48% in New York, to 14.59 cents per pound.

Outlook still uncertain

Analysts say it is still too early to gauge the medium- and long-term impact of the Middle East conflict on the sugar and ethanol markets, since it remains unclear when, or even whether, Petrobras will raise gasoline prices. If the state-controlled company does make a move, it should at the very least prevent a steeper drop in ethanol prices over the next few months, as had been expected.

“With oil at $100 a barrel, if Petrobras fully passes that through, it would virtually wipe out all the decline we had projected [for ethanol prices during the harvest],” said Cristian Quiles, an analyst at consultancy FG/A.

In FG/A’s projections, if Petrobras were to pass through $100-a-barrel oil to the domestic market, the price of gasoline A sold to distributors would rise by about R$1 per liter, and the average price of hydrous ethanol in the 2026/27 harvest would increase by R$0.50 per liter.

Quiles said ethanol prices are likely to adjust in a way that keeps them at 64% to 65% of gasoline prices throughout the next harvest, given the large supply expected. FG/A estimates that sugarcane mills will produce 4 billion more liters than in the 2025/26 harvest, while corn ethanol plants will add another 1.7 billion liters.

Rafael Borges, an analyst at StoneX, said ethanol prices began falling in February, bucking the usual seasonal pattern, when supply tends to decline, because the market expected mills to bring forward crushing to take advantage of biofuel prices that were more attractive than sugar. “With the conflict, prices started rising again,” he said.

In February, ethanol prices from mills in Ribeirão Preto fell from R$3.75 per liter to R$3.45, StoneX said. In recent days, however, they have climbed back to R$3.60 per liter, reflecting expectations of a war-related impact, although uncertainty has reduced trading volumes.

Downward trend

Even so, Borges said the trend for ethanol is still downward in the first half of the harvest. “Even if there is a [Petrobras] price increase, the harvest will bring record supply. Corn ethanol alone will add 2 billion liters,” he said. In his current view, ethanol prices will still need to fall to remain competitive enough with gasoline at the pump and to generate demand for all the ethanol that will be produced.

Sugar prices, meanwhile, only reacted on Monday, after more than a week of conflict. For Borges, sugar prices should be guided by the size of the 2026/27 sugarcane harvest in Brazil’s Center-South and by the production mix, which for now is expected to be less geared toward sugar. “If ethanol offers better returns, the mix tends to shift away from sugar,” he said.

Still, analysts caution that the outlook remains highly volatile. Late Monday, Trump said the war was “practically over,” triggering a sharp reversal in the markets. Oil futures, which had reached $120 a barrel during the session, fell below $100 a barrel by the close.

“This is not ordinary volatility,” said Tarcilo Rodrigues, a partner at Bioagência. In his view, even if the situation changes, oil prices are “unlikely” to return to previous levels because of the “risk premium.” A month ago, Brent crude was at $70 a barrel.

*By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/