Sugar Prices Dip: Market Dynamics Unfold Amid Global Production Shifts
Current Price Fluctuations Highlight a Shifting Market Landscape
March NY world sugar #11 (SBH25) is down -0.04 (-0.21%), while March London ICE white sugar #5 (SWH25) decreased by -1.00 (-0.19%).
Market Reactions to Currency Strength and Production Estimates
Sugar prices are slightly lower today following a decline in recent short-covering activities in sugar futures. Previously, sugar prices had increased due to the strength of the Brazilian real (^USDBRL), which reached a two-month high against the dollar, making it less appealing for Brazil’s sugar producers to export.
Short Positions and Production Adjustments Impacting Sugar Futures
Support for sugar prices comes after Czarnikow reduced its estimate for Thailand’s sugar production in the 2024/25 season to 10.8 million metric tons (MMT), down from 11.6 MMT. A substantial number of short positions held by commodity funds has driven the recent short-covering rally. The latest Commitment of Traders (COT) report, released last Friday, revealed that funds raised their net-short position in NY sugar by 33,828 contracts, reaching a five-year high of 139,873. Additionally, the net-short position in London sugar rose by 6,566 contracts during the same period, also marking a five-year high at 18,708 contracts.
Market Challenges from Global Production Outlook
Last Tuesday, sugar prices fell further, extending a sell-off that lasted three and a half months. NY sugar contracts hit a five-and-a-quarter-month low, while London sugar reached a three-and-a-third-year low. Factors contributing to this trend include an improving global sugar supply. Recently, India announced plans to allow its sugar mills to export 1 MMT of sugar this season after previously imposing export restrictions beginning in October 2023. In the prior season, India only permitted 6.1 MMT of sugar exports, a significant drop from a record 11.1 MMT the year before.
Revised Global Sugar Estimates Signal Shifting Trends
On November 21, the International Sugar Organization (ISO) revised its global sugar deficit forecast for 2024/25 to -2.51 MMT, improving from an earlier estimate of -3.58 MMT. Furthermore, the ISO adjusted its 2023/24 global sugar surplus forecast upwards to 1.31 MMT from 200,000 MT.
Outlook for Thailand and India’s Sugar Production
The outlook for increased sugar production in Thailand poses a bearish trend for sugar prices. Thailand’s Office of the Cane and Sugar Board projects that the country’s sugar output for 2024/25 will rise by 18% year-over-year to 10.35 MMT, after recording 8.77 MMT in the 2023/24 season. Notably, Thailand is the world’s third-largest sugar producer and the second-largest exporter.
Challenges in Indian Sugar Production
Sugar production in India, the world’s second-largest producer, shows signs of decline. On January 9, the Indian Sugar and Bio-energy Manufacturers Association (ISM) reported that sugar output from October 1 to December 31 fell by 15.5% year-over-year to 9.54 MMT. The ISM forecasts a 13.8% drop in India’s total sugar production for the 2024/25 season, projecting a five-year low of 27.6 MMT.
Impact of Environmental Challenges on Brazilian Sugar Production
Last year’s drought and excessive heat led to numerous fires that damaged sugar crops in Brazil’s top producing state, Sao Paulo. According to the sugar cane industry group Orplana, approximately 2,000 fire outbreaks affected up to 80,000 hectares of sugarcane. Green Pool Commodity Specialists estimated that losses could amount to around 5 MMT of sugar cane. Consequently, Brazil’s government crop forecasting agency, Conab, cut its 2024/25 sugar production estimate to 44 MMT, down from 46 MMT, citing lower yields attributed to these environmental conditions. Unica reported that cumulative Center-South sugar output for the 2024/25 season has decreased by 5.5% year-over-year, totaling 39.794 MMT.
Future Projections and Market Sentiment
Supporting sugar prices further, the ISO forecasted on August 30 that global sugar production in 2024/25 would reach 179.3 MMT, reflecting a 1.1% decrease from 181.3 MMT in 2023/24. The USDA, in its bi-annual report released on November 21, anticipated a 1.5% rise in global sugar production for 2024/25, projecting a record 186.619 MMT, alongside a 1.2% increase in global sugar consumption, also at a record 179.63 MMT. However, ending stocks are expected to decline by 6.1% year-over-year, tallying at 45.427 MMT.
On the date of publication, Rich Asplund did not hold positions in any of the mentioned securities. All information is for informational purposes only. For more details, please visit the Barchart Disclosure Policy.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
