Jalles Swings to Profit as Hedge Gains and Ethanol Pivot Offset Sugar Slump
Jalles Machado posted net income of R$ 55.4 million ($10.7M) in the third quarter of crop year 2025/26, swinging from a loss of R$ 73.5 million ($14.1M) in the year-ago period. The turnaround was fueled by a sharp improvement in hedging results and a disciplined shift in the production mix toward ethanol, which commanded better relative economics during the quarter. This is part of The Rio Times’ daily coverage of Latin American markets and financial news.
The top line contracted significantly, with net revenue falling 30.4% year-on-year from R$ 740.4 million ($142M) to R$ 515.3 million ($99M). The decline reflects both lower sugar sales volumes — a function of reduced production in a drought-impacted crop — and weaker global sugar prices that have pressured the entire sector.
Accounting EBITDA fell 17.1% to R$ 319.3 million ($61.4M), while the adjusted measure — which better captures the company’s hedge-inclusive operating performance — came in at R$ 346.1 million ($66.6M), down a more contained 10.3%. The spread between the two metrics underscores how much Jalles’s financial results depend on its hedging strategy, which has been a consistent differentiator among its peers.
The quarter followed the pattern set in Q2, with the widening price gap between ethanol and sugar leading more mills — including Jalles — to tilt their production mix toward ethanol. This is a sector-wide dynamic: as Brazilian domestic ethanol prices strengthened on the back of tight supply and rising gasoline parity, producers redirected cane processing accordingly. For the 9M26 period, anhydrous ethanol sales reached R$ 270.9 million ($52.1M), a 48% jump year-on-year, supported by average captured prices of R$ 3.27/liter.
The cumulative hedge result (settlements plus mark-to-market) surged 182.4% year-on-year to R$ 267.3 million ($51.4M) in the 9M26 period. This was the single most important factor separating Jalles’s profitable outcome from what would otherwise have been a weak quarter. The company entered the crop year with roughly 75% of its 2026/27 sugar production already hedged at prices approximately 20% above current market levels, providing a meaningful cushion for coming quarters.
The crop year has been marked by adverse climate conditions across Goiás and Minas Gerais, where Jalles operates its three units. The company revised its full-year cane crushing target down to 7.5 million tonnes, 5% below both the prior year and its original projection. Productivity indicators — tonnes of cane per hectare and total recoverable sugar — declined as drought conditions compressed yields, particularly at the organic fields of the Jalles Machado unit in Goianésia.
Across the first nine months of crop year 2025/26, Jalles posted cumulative net income of R$ 60.4 million ($11.6M), reversing the net loss recorded in the same period of the prior cycle. Adjusted EBITDA reached R$ 1.02 billion ($197M), up 7.7% year-on-year — a notable achievement given the 5% reduction in cane processed. The improvement was driven by the hedging gains and a more favorable ethanol price environment that partially compensated for lower volumes.
Net debt/EBITDA improved to 1.2x at the end of the nine-month period, down from 1.5x a year earlier. The deleveraging reflects disciplined capital allocation and stronger operating cash flow despite the revenue decline. The company previously maintained leverage at 1.4x at the end of Q1, indicating continued improvement through the crop year as cash conversion accelerated.
Management struck a measured tone, acknowledging the challenging global price environment while expressing confidence in the business model’s resilience. The company described itself as one of the world’s largest exporters of organic sugar and one of the largest sugar and ethanol producers in Brazil’s Centro-Oeste region.
The strategic hedge book remains the centerpiece of Jalles‘s forward guidance. With 75% of the 2026/27 sugar crop already locked in at prices roughly 20% above spot levels, the company has effectively bought itself time to navigate a soft global sugar market. The Santa Vitória unit in Minas Gerais continues its ramp-up, though the turnaround has been slower than initially expected as replanted canefields take time to reach full productivity.
| Metric | 3T26 | 3T25 | YoY |
|---|---|---|---|
| Net Revenue (R$ M) | 515.3 | 740.4 | -30.4% |
| Accounting EBITDA (R$ M) | 319.3 | 385.2 | -17.1% |
| Adjusted EBITDA (R$ M) | 346.1 | 385.9 | -10.3% |
| Net Income (R$ M) | 55.4 | (73.5) | reversal |
| Net Debt / EBITDA (9M, x) | 1.2x | 1.5x | -0.3x |
| 9M Adj. EBITDA (R$ B) | 1.02 | 0.95 | +7.7% |
| 9M Hedge Result (R$ M) | 267.3 | 94.7 | +182.4% |
| 9M Anhydrous Ethanol Sales (R$ M) | 270.9 | 183.0 | +48.0% |
Key Facts
— The hedge book is the franchise moat — with 75% of next year’s sugar locked at a 20% premium to spot, Jalles has earnings visibility that peers lack, and the 182% surge in hedge gains shows the strategy is delivering.
— Organic sugar leadership commands structural premiums and access to the US market through clients like Costco, a positioning that is difficult to replicate and supports higher realized prices over cycles.
— At roughly 3x EV/EBITDA, the stock trades at a steep discount to sector peers, embedding deep pessimism about sugar prices and productivity that any normalization could rerate sharply.
Key Facts
— Revenue fell 30% in a single quarter — hedging gains can mask but not cure the underlying volume and pricing erosion. If global sugar prices stay weak and Centre-South supply keeps rising toward 623 Mt, the revenue base has further to fall.
— The Santa Vitória turnaround has been slower than expected, and elevated growth capex is keeping free cash flow negative, limiting the company’s ability to return capital to shareholders — JALL3 has paid no dividends in the last 12 months.
— US tariff risk is material and concentrated: half of Jalles’s organic sugar exports are US-bound, and any tariff escalation would directly hit the company’s highest-margin product line.
Climate remains the dominant operational risk. The current crop year has already required a 5% downward revision in crushing guidance, and back-to-back drought seasons in Goiás would further erode yields and push unit costs higher. The organic canefields, which account for roughly half of the Goianésia operation, have proven particularly sensitive to water stress.
Global sugar oversupply is a structural concern. The XP projects Centro-Sul output of 623 Mt in 2026/27, and while the ethanol-sugar mix shift provides near-term relief, a sustained downturn in sugar prices would eventually weigh on ethanol parity as well, compressing margins across both products.
The stock’s liquidity is thin — average daily volume of roughly R$ 6.7 million ($1.3M) over the last twelve months — which amplifies volatility and limits institutional participation. With the stock down approximately 35% over the past year and a market cap of around R$ 917 million ($176M), JALL3 trades in micro-cap territory by global standards.
Key Facts
— Jalles’s 3Q26 results reflect the broader paradox facing Brazilian sugar-ethanol producers this cycle: operationally constrained by drought, yet financially cushioned by strong domestic ethanol economics. The widening spread between ethanol and sugar prices has been the defining theme of the quarter, redirecting production across the sector and benefiting companies with flexible milling capacity.
— Among peers, São Martinho reported similar dynamics of lower volumes and rising costs, while Raízen faces the added complication of elevated financial leverage. The XP maintains a buy rating on Jalles with a reduced price target of R$ 4.10, citing the hedge advantage, while acknowledging that short-term catalysts are limited by weak productivity and tariff uncertainty. BTG Pactual also keeps a long-term buy, but flagged that the Santa Vitória recovery has been slower than anticipated.
— The investment case for Jalles ultimately rests on two bets: that the organic sugar franchise retains its premium positioning and US market access, and that the capex-intensive expansion push toward 9 million tonnes of crushing capacity will eventually deliver the scale needed to materially lower unit costs. Until then, the hedge book is doing the heavy lifting — and for this quarter at least, it was enough.
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