Moderate Gains Recorded for Sugar Prices Amid Market Influences

March NY world sugar #11 (SBH25) closed up +0.39 (+1.84%) on Thursday, while December London ICE white sugar #5 (SWZ24) increased by +7.10 (+1.32%).

Market Drivers: Coffee and Cocoa Surge

Sugar prices experienced moderate gains on Thursday, buoyed by rising coffee and cocoa prices. This shift followed the European Parliament’s move to modify its deforestation regulations. If the EU fails to reach an agreement before next month’s deadline, the EU Deforestation Regulation will take effect, potentially limiting the supply of soft commodities from regions where deforestation occurs.

Soaring Dollar Weighs on Prices

Despite Thursday’s uptick, sugar prices faced pressure this week, hitting 1-3/4 month lows on Wednesday due to the dollar index (DXY00) reaching a 1-year high. Additionally, a large positioning by funds in London sugar may lead to long liquidation, worsening any potential downturn in prices. According to last Friday’s Commitment of Traders (COT) report, funds increased their net-long positions in London sugar by 1,457 contracts, amounting to a total of 44,261 net-long positions—the highest figure since tracking began in 2011.

Bearish Factors: Thailand and India Show Higher Production

An anticipated rise in sugar production in Thailand also casts a negative outlook for prices. The Office of the Cane and Sugar Board in Thailand projected that sugar production for the 2024/25 season would rise by 18% year-over-year to 10.35 million metric tons (MMT). For context, Thailand produced 8.77 MMT in the 2023/24 season, solidifying its position as the third-largest sugar producer and the second-largest exporter globally.

Furthermore, optimism regarding the monsoon rains in India could lead to an abundant sugar crop. The Indian Meteorological Department noted that India received 934.8 mm of rain during this year’s monsoon season—more than the long-term average of 868.6 mm. This rainfall, recorded as of September 30, marked the highest total in four years.

Brazil’s Weather Challenges

On the flip side, sugar production in Brazil’s Center-South region faced challenges. A report from Unica showed a 24.3% year-over-year decrease in sugar output during the second half of October, totaling 1.785 MMT. In contrast, cumulative production for the 2024/25 season through October rose by 0.3% to 37 MMT.

Additionally, recent drought and excessive heat led to extensive fires in Brazil’s top sugar-producing state of São Paulo, damaging up to 80,000 hectares of sugarcane. Green Pool Commodity Specialists estimated that fire damage could result in a loss of 5 MMT of sugarcane. In light of these challenges, Conab reduced its 2024/25 sugar production forecast for Brazil’s Center-South region to 42 MMT from 42.7 MMT earlier this year, attributing the downgrade to lower yields. Similarly, Rabobank and Datagro also adjusted their forecasts downward due to the adverse weather conditions.

India’s Export Dynamics

In a move that could affect sugar prices, India’s Food Ministry lifted restrictions on sugar mills producing ethanol for the 2024/25 year. This change may prolong existing sugar export curbs. Last December, India had restricted sugar production for ethanol to bolster sugar reserves. For context, India allowed exports of only 6.1 MMT of sugar during the 2022/23 season, significantly down from a record high of 11.1 MMT in the previous season.

Global Supply and Demand Outlook

The Indian Sugar and Bio-energy Manufacturers Association projected that India’s sugar production for the 2024/25 season might fall by 2% year-on-year to 33.3 MMT. Meanwhile, the International Sugar Organization (ISO) has warned of a 2024/25 global sugar deficit of 3.58 MMT, which is much greater than an estimated deficit of 200,000 MT for 2023/24. They anticipate that global sugar production will decrease by 1.1% year-over-year to 179.3 MMT.

Additionally, the USDA’s biannual report indicated a forecasted record increase in global sugar production of 1.4% to 186.024 MMT for 2024/25. Global sugar consumption is expected to rise by 0.8% to a record 178.788 MMT as well. However, the USDA also projected a significant decline in global sugar ending stocks to a 13-year low of 38.339 MMT, down 4.7% year-over-year.

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On the date of publication, Rich Asplund did not hold any positions in the mentioned securities. This article is for informational purposes only. For details, view the Barchart Disclosure Policy here.

The views expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.