This paper analyses the relationship among sugar, ethanol and gasoline markets. Brazilian sugar is a traditional commodity in international market. Ethanol production has been increasing since the introduction offlex vehicle technology. Thus it emerges a trade-off between ethanol and sugar productions. To develop this analysis, Vector Auroregressions model is used to evaluate the effect of ethanol, sugar and gasoline price shocks on ethanol and sugar supply. As a result, the producer reacts stronger to a change in sugar price than to a change ethanol price and then demonstrates a preference to produce sugar.
