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Why Brazil's sugar trade is turning increasingly sour

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Saxo Bank’s Head of Commodity Strategy, Ole Hansen, is fresh off the plane from Brazil, the world’s biggest producer of sugar and of ethanol made from sugar cane. He has been able to notice firsthand how agricultural producers are struggling, as commodity prices there keep falling. Sugar in Brazil is trading 60% below the early 2011 peak - at 35 cents/lb. 

Ole explains ethanol producers are increasingly under pressure because of the fixed price level for gasoline, which has been set by the Government in order to beat inflation. The current price of sugar is at 14.25 - well below the five-year average of 21.40 cents/lb. Brazil’s government unveiled measures this month to stimulate its ethanol industry after falling demand prompted criticism of President Dilma Rousseff.
President Rousseff is running for another term in the 5 October election, and many analysts say a change in the energy policy is unlikely before then, as the country struggles with both high inflation and a recession.