The 2025/26 harvest in Center-South Brazil (CS) exhibited a material deviation from the historical sugar-ethanol parity response. Despite intervals in which the sugar versus hydrous ethanol spread traded below the commonly referenced switching threshold of roughly 300 to 350 points, sugar allocation remained elevated and inelastic, averaging 52.1% (UNICA, 1 Dec 2025). The cycle coincided with a structural change in the ethanol supply matrix as corn ethanol expanded approximately 19% year-on-year to roughly 8.5 billion liters and reached about 23% of CS ethanol supply (UNICA and market estimates, 2025). The resulting baseload ethanol supply floor reduces the opportunity cost of sugar maximization, shifting the binding constraint from short-run parity toward industrial capacity and export logistics. For 2026/27, variance concentrates in agronomic sensitivity of fire- and drought-stressed ratoons and remains contingent on precipitation realized during the January to February 2026 vegetative window.
1. Market Fundamentals and Observed Deviations (2025/26)
The 2025/26 cycle combined stable industrial throughput with weaker field productivity and elevated sugar allocation. CS cane crush tracked near 602 MMT based on bi-weekly pace and standard end-season extrapolation conventions (UNICA, 1 Dec 2025). Agricultural yield (TCH) is frequently summarized near ~75 t/ha, representing an approximate 6% decline from the prior-cycle baseline often cited around ~80 t/ha, while sucrose content (ATR) averaged near ~142 kg/ton, modestly above recent multi-year averages (UNICA; CTC-style benchmarks, 2025).
Sugar allocation averaged 52.1% (UNICA, 1 Dec 2025), a level typically associated with sustained parity incentives. The defining deviation was persistence of high sugar allocation through intervals in which the sugar-hydrous spread compressed below historical switching bands. In parallel, export logistics imposed visible constraints as Santos waiting times exceeded 30 days at peak in late 2025, weakening the linkage between FOB Santos pricing and interior mill realizations and increasing basis volatility (Williams Shipping Agency, Nov 2025).
2. Structural Decoupling Dynamics: Mechanism and Constraint Migration
The CS production mix has historically displayed a high price-elastic supply response to relative economics of sugar and hydrous ethanol. Under the traditional framework, widening sugar premia over hydrous ethanol induced rapid reallocation toward sugar, while tightening spreads encouraged rebalancing toward ethanol. The 2025/26 cycle exhibited a weaker contemporaneous relationship, characterized by sustained sugar mixes above 50% despite intermittent compression of the spread below levels frequently cited as switching thresholds (UNICA, 2025).
A plausible mechanism follows from the changing composition of ethanol supply. Corn ethanol expanded approximately 19% year-on-year to about 8.5 billion liters and reached roughly 23% of CS ethanol supply (UNICA and market estimates, 2025). This baseload component increases short-run ethanol supply inelasticity and reduces the probability that domestic ethanol tightness forces rapid reversion in cane allocation. Parity remains relevant but binds less frequently at the margin. The binding constraint therefore migrates toward (i) industrial limits in crystallization and recovery and (ii) downstream export throughput.
This constraint migration aligns with the coexistence of record sugar allocation and acute port congestion. When industrial utilization approaches capacity ceilings, incremental sugar supply responds less to price and more to operational bottlenecks. When export throughput constrains realization, basis risk can dominate flat-price direction in determining realized mill economics, even under favorable NY#11 levels.
3. Estimate Dispersion and Measurement Uncertainty
Annual sugar output estimates for CS 2025/26 exhibit meaningful dispersion across trade and consultancy projections. Higher-end estimates cite output near ~44.5 MMT, while some consultancy framing places output closer to the low 41 MMT range (Datagro, 2025; market commentary). The dispersion reflects differences in end-season assumptions on crush cadence, mix stability into the final weeks, late-season ATR drift, and revision dynamics in high-frequency reporting (UNICA, 2025).
Consequently, production estimates function as a probability distribution rather than a deterministic point estimate, and distribution width can matter as much as the mean when global export availability depends heavily on a single origin.
4. Agronomic Risk Assessment for 2026/27: Fire Stress and Rainfall-Contingent Recovery
The 2026/27 outlook is defined by the cumulative biological impact of the 2025 fire season interacting with drought stress and ratoon age. Acute damage peaked near ~80,000 hectares during the most severe week (Orplana, Aug 2025). Broader syntheses incorporating cumulative stress and satellite scar aggregation extend the affected footprint toward ~0.40 to 0.42 million hectares across São Paulo and Minas Gerais (field reports and satellite-based summaries, 2025). The divergence introduces a wide error band in TCH projections because yield outcomes depend on stool survival, root stress, harvest disruption timing, and renovation capacity.
Two variables dominate a tractable yield-sensitivity framework. Renovation drag, where accelerated replanting on 15% to 20% of stressed land reduces harvestable area mechanically and shifts recovery into subsequent cycles. Precipitation thresholds, where vegetative recovery in ratoon cane correlates tightly with rainfall realized in the January to February window. Using the Ribeirão Preto micro-region as a practical monitor, accumulated precipitation below 150 mm during Jan–Feb 2026 supports a downward revision in TCH of approximately 2% to 4% versus baseline assumptions, while outcomes below 100 mm expand downside risk to roughly 5% to 8%, absent offsetting gains from renovation and crop management (INMET historical normals as baseline reference).
5. Market Implications and Forward Outlook (6–12 Months)
Greater inelasticity in the allocation function implies that price corrections in NY#11 may induce a weaker near-term supply response than historical parity heuristics suggest, at least at the margin. This elevates basis and execution risk relative to flat-price direction in short-horizon strategy. Procurement models that rely on spot availability during congestion-prone shipment windows face elevated uncertainty due to logistics saturation and the observed weakening between FOB benchmarks and mill-gate realizations (Williams Shipping Agency, 2025).
For capital allocation and credit, the relevant stress case combines lower throughput with higher nominal prices. A “Bull Volume” outcome where CS sugar output falls below ~41 MMT, due to rainfall-driven yield drag, renovation losses, or both, can impair fixed-cost dilution and reduce margin resilience even as headline price levels rise. Early-season rainfall and renovation indicators therefore carry higher information content for exposure revision than mid-harvest confirmation.
Data Sources and Methodology
UNICA bi-weekly reporting through 1 Dec 2025 anchors 2025/26 operational indicators; full-season values follow standard tail-season extrapolation conventions. Agronomic assumptions follow common CS benchmarking frameworks and translate stress into area and yield effects via renovation rates and yield-drag coefficients. Rainfall triggers reference INMET historical normals to construct anomalies and apply threshold-based revisions to TCH expectations.