Sugar Prices Dip Amid Changing Global Supply Dynamics

Market Overview: March NY world sugar #11 (SBH25) is down -0.21 (-0.95%), while March London ICE white sugar #5 (SWH25) has decreased by -5.60 (-0.98%).

The sugar market faced a decrease today after touching 1-1/2 week highs. This shift is largely influenced by speculation that rising sugar production in Thailand will compensate for any potential shortages due to seasonal sugar mill closures in Brazil.

On Tuesday, sugar prices briefly extended Monday’s gains, fueled by predictions from Wilmar International. They anticipate that the number of closed sugar mills in Brazil, currently 38, could more than triple this month, significantly impacting the nation’s sugar output. Brazil’s sugar mills typically halt operations during the wetter months of December and January, resuming as early as March, depending on weather conditions. Recent heavy rains have prompted earlier-than-expected closures this month.

Last week, sugar prices faced significant pressure, dipping to two-month lows after the U.S. dollar index (DXY00) reached a one-year high. Outlook for Thai sugar production weighs heavily on market sentiment. As reported on October 29, Thailand’s Office of the Cane and Sugar Board predicts that sugar production for 2024/25 will rise by +18% year-over-year to 10.35 million metric tons (MMT). In comparison, Thailand produced 8.77 MMT of sugar in the 2023/24 season that ended in April. Notably, Thailand is the world’s third-largest sugar producer and the second-largest exporter.

Additionally, there is growing concern about the impact of above-average monsoon rains in India, which are expected to contribute to a bumper sugar crop. The Indian Meteorological Department noted that India received 934.8 mm of rain during this monsoon season, marking the highest amount in four years and exceeding the long-term average of 868.6 mm. This rainy season runs from June through September.

In contrast, a recent report from Unica indicated that sugar output in Brazil’s Center-South region fell by -24.3% year-over-year to 1.785 MMT during the latter half of October, although cumulative sugar output for the 2024/25 crop year increased by +0.3% year-over-year to 37 MMT.

Brazil has experienced adverse weather conditions, including drought and excessive heat, leading to damaging fires in São Paulo, its top sugar-producing state. The sugar cane industry group Orplana reported approximately 2,000 fire outbreaks impacting up to 80,000 hectares of sugarcane. Green Pool Commodity Specialists estimate the losses could reach up to 5 MMT of sugarcane. On August 22, Brazil’s government crop forecasting agency Conab reduced its 2024/25 sugar production estimate for the Center-South region from 42.7 MMT to 42 MMT due to these issues. Similarly, Rabobank and Datagro also adjusted their forecasts downwards, citing drought and limited mill capacity.

Positive developments for sugar prices came when India’s Food Ministry lifted restrictions on sugar mills producing ethanol for the 2024/25 year, starting in November. This decision may extend India’s limitations on sugar exports, which have been in place since October 2023 to maintain domestic supplies. Last December, India had mandated sugar mills cease ethanol production from sugarcane to boost its sugar reserves. In the previous season, only 6.1 MMT of sugar was allowed for export, down from a record 11.1 MMT.

The Indian Sugar and Bio-energy Manufacturers Association (ISM) reported a -1.6% year-over-year decline in India’s sugar production for the October-April period. Projections suggest a further -2% reduction for 2024/25, with sugar reserves estimated at 8.4 MMT on September 30, down from an earlier projection of 9.1 MMT.

In a global context, the International Sugar Organization (ISO) forecasted a deficit of -3.58 MMT for 2024/25, a stark contrast to the estimated -200,000 MT deficit for 2023/24. ISO estimates global sugar production for 2024/25 at 179.3 MMT, down -1.1% from 181.3 MMT in 2023/24. The USDA released a bi-annual report indicating that global sugar production is expected to rise +1.4% year-over-year to a record 186.024 MMT, while global sugar consumption is projected to increase by +0.8% to 178.788 MMT. Ending stocks for 2024/25 are estimated to decline -4.7% to a 13-year low of 38.339 MMT.

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

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