Sugar and gasoline don\u2019t have a lot in common, unless you\u2019re in a sugarcane mill in Brazil, in which case they\u2019re literally the same plant. Usually that\u2019s a fun fact, but right now it\u2019s a problem.<\/p>\n
Brazil is the world\u2019s dominant sugar exporter\u2014roughly 45% of everything traded globally. Every harvest, mills decide how much sugarcane goes to sugar and how much goes to ethanol. When oil prices are low, the math favors sugar. When oil spikes, ethanol gets more profitable, and cane gets pulled away from sweetener production.<\/p>\n
The Strait of Hormuz disruptions have now tipped that math, as oil is hovering around $100 a barrel. The government is considering raising the maximum ethanol blend in flex fuel from 30% to 35%,\u00a0a move that would funnel significantly more sugarcane away from sugar and into fuel.<\/p>\n
At the same time, Brazil\u2019s truckers threatened to strike this week over high diesel prices \u2014 and the government scrambled, cutting fuel taxes and drafting proposals to let states slash fuel levies. The last time Brazilian truckers walked off the job, in 2018, it paralyzed Latin America\u2019s largest economy for days: fuel shortages, and empty supermarket shelves abounded.\u00a0 <\/p>\n
If a strike happens, the timing couldn\u2019t be worse. Sugarcane, when it\u2019s harvested, has to be immediately trucked from fields to mills, then trucked from mills to ports. A trucker strike would halt that process during the most critical time of year. Brazil\u2019s new sugarcane harvest starts April 1, and the first three months are when the bulk of the crop is processed. That means the decision about how much cane goes to sugar versus ethanol is being made right now, as the Strait of Hormuz is a war zone.<\/p>\n
\u201cIf this is a problem for the next few months, with the war and oil prices being high, then the majority of the biggest bulk of the harvest is going to swing to ethanol, away from sugar,\u201d Judith Ganes, an independent commodities analyst with four decades in soft commodity markets, told Fortune. Six months from now, when 75% of the crop is already in, it wouldn\u2019t matter that much, she added.<\/p>\n
Sugar prices are already anticipating that mix. White refined sugar in London hit $451 per ton on Friday\u2014-its highest since October and up 8% since the war in Iran began. Ganes sees raw sugar heading to 18 to 19 cents per pound, up from the 13- to 14.5-cent range where it had been stuck for \u201cmonths and months and months.\u201d\u00a0<\/p>\n
The logistics of it all are making it worse. Persian Gulf refineries that import Brazilian raw sugar and process it into refined products for the region are seeing their expected shipments delayed or rerouted as the Strait of Hormuz remains largely closed. <\/p>\n
That makes the problem two-sided: refined sugar gets scarce across the Middle East, East Africa, and parts of Asia, while raw sugar backs up at its origin in Brazil with nowhere to go.<\/p>\n
\u201cIt creates a tightness in refining of white sugar and shortfall in the region, but then leaves the exporter with\u2014uh oh, where\u2019s the sugar going?\u201d Ganes said.<\/p>\n
At the 18-cent price range, she doesn\u2019t imagine consumers will feel any effect. Sugar prices were already depressed all year, and cocoa prices have also come down hard after some tariff relief, easing some pressure on manufacturers of baked goods.\u00a0<\/p>\n
But beyond the war, the longer-term picture isn\u2019t reassuring. Ganes flagged a strong probability of an El Ni\u00f1o weather pattern in 2026\/27, which would bring drought conditions to Southeast Asia and threaten production in Thailand and India\u2014the other two pillars of global sugar supply. Replanting has already slowed after years of depressed prices. In a scenario of a severe El Ni\u00f1o,\u00a0\u201cAny cushion is done,\u201d she said.<\/p>\n
At the Federal Reserve on Wednesday, Chair Jerome Powell acknowledged the broader commodity bleed from the Iran war. He noted that oil and its derivatives feed into production and transportation costs across the economy, with effects that \u201cleak into core\u201d inflation. But he stressed the uncertainty: \u201cWe\u2019re right at the beginning of this, and we don\u2019t know how big this will be and how long it lasts.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Sugar and gasoline don\u2019t have a lot in common, unless you\u2019re in a sugarcane mill in Brazil, in…\n","protected":false},"author":2,"featured_media":552557,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[7426,45,49,48,17118,25204,10773,5897,100,6373,4992,8767],"class_list":["post-552556","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-brazil","tag-business","tag-ca","tag-canada","tag-commodity-prices","tag-consumer-goods","tag-food-and-drink","tag-iran","tag-markets","tag-sugar","tag-tariffs","tag-war"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/552556","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=552556"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/552556\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/552557"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=552556"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=552556"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=552556"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}