Porto Alegre, June 23th, 2025 – The month of May was a period of sharp reduction in the price disadvantage between hydrated ethanol traded in the physical market and raw sugar in New York, where the price ratio between the two fell 7 %, going from -20.07% to -13.06%. This comparison considers the prices of hydrated ethanol traded on the Brazilian physical market, in reals per liter, based in Ribeirão Preto, but converted to cents a pound, inside mills, without freight or taxes and added to the prices of the CBIOS contracts, against the prices of raw sugar in New York, considering the July/25 driver contract, also placed within mills and including the export premium.
Basically, what SAFRAS & Mercado observed between April and May that culminated in this 7% decrease in the disadvantage of hydrated ethanol compared to sugar was the sharp 3.59% decline in sugar prices in New York against a moderate 0.27% high in the prices of hydrated ethanol on the physical market.
In other words, we can say that the price differential between hydrated ethanol and sugar has been reduced by the decline in sugar prices rather than a possible increase in hydrated ethanol prices. This is because the high in hydrated ethanol prices in reals per liter, which was close to stability at 0.27%, was sharply increased to gains of 4.06% due to the appreciation of the real against the dollar in the same period, which increased 2.02%, going from an average of BRL 5.7831 to BRL 5.6664.
It is interesting to remember that the conversion of prices from reals per liter to cents a pound applied to ethanol, so that it can be compared with raw sugar in New York, assumes that the more the real rises against the dollar, the sharper the high in hydrated ethanol prices will be when converted to cents a pound. Besides, as the real has been stronger than the dollar in Brazil, the decline in New York raw sugar has been sharpened when placed in mills in the PVU mode [without freight and to be picked up at mills or warehouses].
At this point, hydrated ethanol is 4.06% higher when converted to cents a pound, while at the same time raw sugar prices in New York are 4.41% lower when placed inside mills in the PVU mode, which explains the strong 7% decline in the disadvantage of ethanol compared to New York raw sugar.
Moreover, SAFRAS & Mercado warns that hydrated ethanol saw a major boost in its prices inside mills due to the 20% decline in the PIS/Cofins tax that occurred in May, where the rate was reduced from BRL 0.24 to 0.192 per liter. This 20% reduction in PIS/Cofins was also largely responsible for the increase in the comparative advantage of hydrated ethanol, although in the same proportion the raw sugar lows in New York were not at all negligible.
We can say that even if PIS/Cofins had not been reduced by 20% between April and May, hydrated ethanol would still have seen reductions in its level of devaluation from New York raw sugar, even if not in the same proportion of 7%, but in the region of 5%, which would also be an important movement. As sugar is in a broader medium-term downward trend, this will maintain downward pressure on the gap between hydrated ethanol and sugar next month.
Last month, SAFRAS & Mercado expected the average price ratio between hydrated ethanol and New York sugar to fluctuate around -18.83%, which was 5% higher than the effective data of -13.06% for the period, in fact reducing the differential between hydrated ethanol and sugar. For June, SAFRAS & Mercado estimates that hydrated ethanol will have a new reduction in its devaluation from sugar, falling to -11.46%, with a 1.60% decline from the most recent data from May.
This will occur due to more intense losses to be observed in raw sugar in New York than in ethanol in the physical market, which will continue to benefit from a pattern of dollar pricing that is more favorable to the real, where the Brazilian currency will maintain its strengthening curve in the short term. In addition, SAFRAS & Mercado warns that in June there will be a change in the driver position from the first screen, July/25, to the second one, October/25, which will reinforce the downward pressure on sugar prices, helping the trend of continuing to reduce the disadvantage of hydrated ethanol against raw sugar in New York.
