Drought Hits Raízen Hard: Sugar Production Plummets 24%

Raízen, Brazil’s largest sugar and ethanol producer, released its operational data for the third quarter of the 2024/25 crop year. The company’s performance fell below expectations due to severe drought conditions.

This report comes from Empiricus analyst Larissa Quaresma’s analysis of Raízen’s latest figures. Sugar production dropped by 24% compared to the previous year, totaling 1.85 million equivalent tons.

The decline stems from reduced sugarcane availability caused by water scarcity and fires. Factory productivity also decreased during this period. Sugar sales fell by 11% year-on-year, with prices per ton dropping 9%.

However, ethanol sales from Raízen’s own production rose by 21%, accompanied by an 11% price increase. Despite these challenges, the sugar and ethanol operation showed resilience. The company relied on existing stocks to meet some sales demands.

In the Mobility sector, which handles fuel distribution, Brazilian operations saw a 4% volume decrease. Latin American operations in Argentina and Paraguay experienced a 3% annual growth. Both regions maintained stable profitability.

Cosan, Raízen’s parent company, made a significant move by selling its entire stake in Vale for R$9 billion ($1.5 billion). This decision aims to reduce debt and is expected to save approximately R$1.3 billion ($217 million) in annual interest expenses.

Cosan’s Strategic Shift

The net positive effect on results is estimated at R$400 million ($67 million). Quaresma views this strategic shift positively, noting it demonstrates the new management’s commitment to debt reduction and operational efficiency.

However, she acknowledges that resolving Raízen‘s operational issues will take time. Following these developments, Raízen discontinued its guidance for the 2024/25 crop year.

Cosan’s stock price relinquished gains made after the Vale stake sale. Despite these challenges, Quaresma maintains a cautiously optimistic outlook for Cosan.

Cosan’s shares currently trade at a 40% discount compared to the sum of its subsidiaries’ parts. This valuation, combined with ongoing efforts to address operational and financial challenges, leads Quaresma to keep CSAN3 among Empiricus’ recommendations.

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