Sugar Prices Surge Amid Supply Concerns and Weather Challenges

March NY world sugar #11 (SBH25) is up +0.51 (+2.36%) today, while March London ICE white sugar #5 (SWH25) is up +15.80 (+2.85%).

Brazil’s Mill Closures Drive Sugar Prices Higher

Sugar prices reached a one-week high today, fueled by expectations of increased seasonal sugar mill closures in Brazil. Wilmar International estimates that the number of closed mills in Brazil, which currently stands at 38, could more than triple this month. This significant reduction in operations will likely decrease the country’s overall sugar production. Typically, Brazilian mills halt cane processing during the rainy season in December and January, but recent heavy rains have led them to shut down earlier than anticipated this year.

Economic Pressures Impact Sugar Market

Last week, sugar prices faced downward pressure, dropping to a two-month low last Wednesday due to a rise in the dollar index (DXY00), which hit a one-year high.

Compounding the situation, the outlook for sugar production in Thailand is unfavorable for sugar prices. On October 29, Thailand’s Office of the Cane and Sugar Board forecasted a robust 2024/25 sugar production increase of +18% year-over-year, reaching 10.35 million metric tons (MMT). The 2023/24 season concluded with a production of 8.77 MMT. As the world’s third-largest sugar producer and second-largest exporter, Thailand’s output can significantly influence global prices.

Monsoon Rains and Crop Damage Affect India

In India, anticipated above-average monsoon rains may lead to a strong sugar crop, which could lower prices. The Indian Meteorological Department reported that India received 934.8 millimeters of rainfall during the monsoon season as of September 30, marking the highest amount in four years and exceeding the long-term average by 7.6%. This monsoon runs from June to September.

Moreover, a report from Unica indicated a -24.3% year-over-year decline in Brazil’s sugar output from the Center-South region during the latter half of October, totaling 1.785 MMT. Conversely, the cumulative sugar output for the 2024/25 Center-South region through October increased by +0.3% year-over-year to 37 MMT.

Environmental Challenges and Production Forecasts

Environmental factors further complicate the Brazilian sugar market. Recent drought and excessive heat have caused fires that damaged crops in São Paulo, Brazil’s leading sugar-producing state. The sugar cane industry group Orplana reported up to 2,000 fire incidents covering approximately 80,000 hectares. Green Pool Commodity Specialists estimated a loss of up to 5 MMT of sugar cane due to these fires. In response, Conab, Brazil’s government crop forecasting agency, reduced its 2024/25 Center-South sugar production estimate from 42.7 MMT to 42 MMT due to lower yields. Rabobank also adjusted its forecast down to 39.3 MMT from 40.3 MMT, citing persistent dryness, and Datagro lowered its estimate to 38.7 MMT from 39.3 MMT, blaming drought and limited processing capacity.

India’s Policy Changes Impact Sugar Exports

Additionally, India’s Food Ministry lifted restrictions on sugar mills producing ethanol for the 2024/25 year, which may extend the country’s sugar export controls. In December, India controlled sugar mills from using sugarcane for ethanol production during the 2023/24 supply year to strengthen sugar reserves. Since October 2023, India has placed restrictions on sugar exports to maintain local supply levels. In the 2022/23 season, only 6.1 MMT was allowed for export, a significant drop from a record 11.1 MMT in the previous season. However, on October 3, the Indian Sugar and Bio-energy Manufacturers Association (ISM) stated that India could have 2 MMT of sugar available for export in the upcoming season and encouraged the government to revise current restrictions.

Global Sugar Deficit Forecasted

Further influencing the market is the forecast by the International Sugar Organization (ISO), which projected a global sugar deficit of -3.58 MMT for 2024/25, a notable increase from the -200,000 MT deficit estimated for 2023/24. ISO anticipates a decrease in global sugar production for 2024/25, predicting a total of 179.3 MMT, down -1.1% from 2023/24’s 181.3 MMT.

The USDA’s bi-annual report released on May 23 suggested a rise in global sugar production of +1.4% year-over-year to a record 186.024 MMT, with human sugar consumption also expected to increase by +0.8% to a record 178.788 MMT. However, the report indicated that global sugar ending stocks could drop -4.7% year-over-year to a 13-year low of 38.339 MMT.

On the date of publication, Rich Asplund did not have positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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