Production and Costs: From the Cane Field to the Refinery

You wake before sunrise on a Tuesday in June 2015, and the news is already bad.

The Reuters terminal in your office at the Usina São Martinho mill, roughly 350 kilometers northwest of São Paulo in Ribeirão Preto, shows raw sugar futures sitting at 11.8 US cents per pound on the ICE exchange. That is the lowest price in six years. Your crushing season is scheduled to begin in four days. Three thousand workers are expecting to show up. Forty-seven growers have signed contracts to deliver cane from the surrounding cerrado.

Your board wants a decision by 9 a.m.

The choice sounds simple when your CFO lays it out on the whiteboard:

Option A: Shut down for the season. Suspend crushing operations, pay out contractual minimums to workers and growers, and wait for prices to recover. Stop the bleeding now.

Option B: Crush the cane. Run the season as planned, sell sugar and ethanol into a brutal market, and hope that revenues at least cover the costs of actually running the mill day to day.

Option A feels like discipline. Every business school case study you have ever read tells you not to throw good money after bad. Prices are below your cost of production, at least by the numbers your controller handed you last week. Shutting down feels rational, decisive, responsible to shareholders.

Option B feels like stubbornness. But your head of operations keeps saying something you cannot quite dismiss: "The cane is already in the ground. The mill is already here. If we don't crush, we lose everything we would have lost anyway, plus we lose what we could have made."

You have four hours to decide. What do you do?