Ethanol markets in Brazil are entering a critical phase where supply growth is accelerating just as external energy shocks reshape demand dynamics. The balance between rising production and firm consumption is becoming increasingly fragile as market participants reassess pricing expectations. This shift is particularly significant given Brazil’s role as a global biofuels leader and the scale of its domestic consumption. The evolving conditions highlight how interconnected commodity and energy markets are becoming in the current cycle.
Marcelo Bonifacio, Market Intelligence Analyst at StoneX, has closely tracked Brazil’s ethanol and biofuels markets through shifting price cycles and production strategies. His expertise in Brazilian supply dynamics and fuel substitution trends provides a unique perspective on how ethanol pricing responds to both domestic production shifts and global energy disruptions.
Key Themes
Ethanol prices are expected to trend lower into mid-2026 as increased production boosts supply during peak harvest.
Gasoline prices in Brazil have risen around 9 percent since the Middle East conflict began, supporting ethanol demand.
Strong ethanol price premiums over sugar are driving mills to increase ethanol production in the current season.
Ethanol prices are expected to decline as Brazil’s sugarcane harvest increases supply into the market during the second quarter of 2026. This shift is driven by production incentives, with Bonifacio noting that "we are heading to the second quarter of the year with really good prices for the sugar cane mills to divert more of feedstock to ethanol". More ethanol entering the market creates downward pressure on prices as inventories build. Producers may face tighter margins if prices fall faster than expected, particularly during peak harvest months. Over time, this dynamic could prompt a reassessment of production mixes if price declines begin to erode profitability.
Gasoline Prices Support Ethanol Demand Despite Oversupply
Ethanol demand remains supported by rising gasoline prices, which are strengthening its competitiveness as a substitute fuel in Brazil. Bonifacio highlights that "the gasoline is 9 percent higher compared to February when the conflict in the Middle East started", reinforcing demand for hydrous ethanol among consumers. As a result, higher fuel costs are helping to offset some of the downward pressure created by increased supply. This creates a price floor effect, where ethanol prices may decline but are unlikely to collapse sharply. In contrast to pure oversupply scenarios, the interaction between energy markets and biofuels is stabilizing demand even as production rises.
Frequently Asked Questions
Why are ethanol prices expected to fall in 2026?
Ethanol prices are expected to decline due to increased production during Brazil’s peak sugarcane harvest, which will raise overall supply in the market.
What is supporting ethanol demand despite rising supply?
Higher gasoline prices are encouraging consumers to use ethanol as a substitute fuel, helping to sustain demand even as supply increases.
How do sugar prices affect ethanol production?
When ethanol trades at a premium to sugar, mills are incentivized to divert more feedstock toward ethanol production, increasing supply.
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--- Expert: Marcelo Bonifacio, Market Intelligence Analyst at StoneX
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