2026/27 Ethanol Glut in Brazil Set to Depress Prices

Brazil's biofuel market faces the prospect of further declines in ethanol prices during the 2026/27 harvest season. A recent report published by the consulting firm Czarnikow predicts that diverting sugarcane to ethanol production rather than sugar has increased supply, and rising domestic consumption may not be fast enough to absorb this surplus. The company's analysis states that in Brazil's leading producing states, ethanol continues to be a more profitable alternative for mills compared to sugar production. This situation leads facilities to expand their ethanol production capacities, causing the sugar production mix ratio to fall to its lowest level since the 2022/23 season. The report also emphasizes that this production and demand imbalance will directly affect not only ethanol prices but also the global sugar market.

Since the beginning of the current season, hydrous ethanol prices have dropped by approximately 15 percent. Despite this, the focus of Brazilian mills on biofuel production continues to shift the cost-benefit balance in favor of ethanol, especially in major production centers like São Paulo. Market analyst Ana Zancaner states that in order to absorb this surplus and achieve price stability, it is essential for drivers to switch from gasoline to ethanol as vehicle fuel. According to Czarnikow's data, sugarcane ethanol production realized until the second half of May showed an impressive increase of 44 percent compared to the same period of the previous year. While this production boom deeply shakes market dynamics, it clearly reveals that concrete consumer demand is needed to eliminate the excess supply.

On the other hand, the 15 percent annual decline in ethanol production derived from corn prevents the supply pressure in the market from being much more destructive. However, the total excess supply calculated by the consulting firm still remains at a significantly high level, reaching 1.5 billion liters. Despite the price parity between ethanol and gasoline being at its lowest level in the last decade, the failure of domestic demand to respond at this expected level concerns producers and market experts. The report states that in order to halt the current price collapse and re-establish balance, it is critically important for hydrous ethanol's share of total fuel consumption to exceed the 30 percent threshold. Experts argue that consumers recognizing this price advantage and preferring ethanol over gasoline is the most important step that can be taken for the market's recovery.

Another significant development bringing optimism to the market is the notable increase in the production of anhydrous ethanol produced through grains. The volume of anhydrous ethanol derived solely from corn has risen by 60 percent compared to a year ago and is expected to add approximately 1 billion liters to the market by the end of the season. Additionally, with the diversion of sugarcane, Brazil's traditional production source, into this area, an additional anhydrous ethanol production of around 600 million liters is anticipated. This substantial increase is fueling debates that mandatory gasoline-ethanol blend ratios need to be reassessed. The company argues that urgent policy changes are needed to absorb this massive volume and for production facilities to achieve full efficiency from their capacities.

The Czarnikow report suggests that the most effective solution for managing this massive supply surplus is to increase the mandatory gasoline-ethanol blend ratio. The mandatory anhydrous ethanol blend ratio, currently applied at 30 percent, is expected to be raised to 32 percent this year. The consulting firm calculates that if the new regulation comes into effect in August, it will provide an additional increase of approximately 700 million liters in annual demand. Regarding the production process, it is shared that severe rains in the second half of May slightly delayed sugarcane crushing operations, but the seasonal harvest yield is still 16 percent higher compared to the previous year. In this process, where international commodity markets will be affected by the decisions to be made by the Brazilian government, the biofuel sector continues to be closely monitored.