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Harvest 2023/24: a stress test for the sugar-energy sector

The last three sugarcane harvests had very good economic results. All costs were covered, including interest on equity, thanks to high sugar and oil prices.

As a result, the sector is capitalized and investments in crop renewal, in appropriate cultural treatments and in the optimization of industrial operations are taking place. Investments in increasing capacity also occur, preferably focused on sugar.

So far everything has gone well. However, those who work in the commodities sector know that there is a cycle of high and low prices. This condition makes the business viable in the medium and long term with prices above costs.

Sugar: the favorite

The price of sugar on the international market, at the beginning of the 2023/24 harvest, is above the price ceiling of the last 10 years. This ceiling occurred in the 2016/17 harvest, when the downward trend in prices that lasted two years began. We are assuming for this consideration, in addition to the price of the product in US$, the value of the US$ against other currencies and American inflation. Will this situation happen again with the normalization of world supply and demand conditions? What if it happens? What is the economic result of this current harvest 2023/24.

If what happened in 2016 happens in 2023, we can expect prices to fall after the year's high of 700 points (or 7¢/lb). With 25.80¢/lb as the maximum monthly price for 2023, we can expect a minimum of around 19¢/lb.

In this stress scenario, the economic result of sugar in the current 2023/24 harvest is still quite satisfactory. This condition is explained by the high prices that sugar reached in the foreign market and by the devalued Real, which made it possible to easily cover costs.

Ethanol: produce as little as possible

In the case of ethanol, the story is different. Possibly the economic result of the ethanol business will be in deficit in the current 2023/24 harvest. The reasons for this conclusion can be summarized in three.

First, the price of oil is falling. Until April/23, the beginning of the current harvest, the price of WTI oil fluctuated around 80 US$/barrel. It currently fluctuates around 70 US$/barrel. This is bearish for gasoline and ethanol prices at the pump.

The exchange rate has been falling, which depresses prices in Reais.

And finally, the Lula government has established stability at the pump as an objective for gasoline prices, protecting the consumer's budget. As the tax burden on gasoline and ethanol has increased, the net producer price has decreased.


As previously mentioned, sugar should contribute to a good economic result of the business. And ethanol, no.

Taking into account the production mix at the mills, where around 50% of the cane is destined for sugar production, we can admit that the economic result of this harvest will be positive for the mills, for the fourth year in a row.



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