Sugar Prices Rise Amid Brazilian Drought Concerns

On Friday, May NY world sugar #11 (SBK25) closed up +0.26 (+1.45%), and August London ICE white sugar #5 (SWQ25) finished up +9.50 (+1.88%). Sugar prices climbed to two-week highs, driven by concerns that dry weather in Brazil could reduce sugarcane yields.

Weather Impact on Prices

Brazil’s forecaster, Somar Meteorologia, indicated that the likelihood of rain in the country’s sugar-producing areas appears limited for the coming week. This forecast has led to increased prices, as lower yields could diminish supply.

Recent Sugar Production Data

Additional support for sugar prices was noted last Thursday when the Indian Sugar and Bio-Energy Manufacturers Association (ISMA) announced that India’s sugar production from October 1 to April 15 reached 25.5 million metric tons (MMT), an 18% decline from the same timeframe last year.

However, sugar prices faced downward pressure earlier last week, with NY sugar marking a 2.5-year low on Tuesday and London sugar hitting a three-month low on Wednesday. The outlook of an expected bumper crop in India due to anticipated heavy monsoon rains has added bearish sentiment. India’s Ministry of Earth Sciences forecasts rainfall to reach 105% of the long-term average this monsoon season, which runs from June through September.

USDA Projections and Economic Concerns

Compounding the bearish outlook, the USDA’s Foreign Agricultural Service (FAS) estimated that Brazil’s sugar production for the 2025/26 season will increase by 2.3% year-on-year to 44.7 MMT, up from 43.7 MMT in the previous season.

Moreover, fears surrounding the global trade war have heightened concerns that consumer demand could be negatively impacted by potential tariffs on sugar, further suppressing prices.

Exports and Global Supply

Additionally, on January 20, the Indian government announced it would allow sugar mills to export 1 MMT this season, easing previous restrictions set in 2023. India had only permitted a limited 6.1 MMT of sugar exports during the 2022/23 season, down from a record 11.1 MMT the year before. Looking forward, ISMA projects India’s sugar production for 2024/25 to decline by 17.5% year-on-year to a five-year low of 26.4 MMT.

Furthermore, Thailand’s sugar production is expected to increase. The Office of the Cane and Sugar Board reported a 14% rise in 2024/25 output to 10.00 MMT, affirming Thailand’s status as the world’s third-largest producer and second-largest exporter of sugar.

Market Dynamics and Global Production Outlook

Despite recent gains in sugar prices, signs of lower global sugar production provide a supportive backdrop. Unica reported a 5.3% year-on-year decrease in cumulative sugar output in Brazil’s Center-South through March, totaling 40.169 MMT. The ISMA also revised its forecast for India’s sugar production in 2024/25 down to 26.4 MMT, citing reduced cane yields.

The International Sugar Organization (ISO) has increased its global sugar deficit forecast for 2024/25 to -4.88 MMT, compared to a previously estimated -2.51 MMT, reflecting a tighter market condition than the 2023/24 global surplus of 1.31 MMT. Meanwhile, the ISO has revised its production forecast down to 175.5 MMT for the 2024/25 crop year.

Climate Challenges in Brazil

Last year’s drought and extreme heat led to destructive fires in Brazil’s primary sugar-producing state, Sao Paulo, causing significant crop loss. Green Pool Commodity Specialists estimate that approximately 5 MMT of sugarcane may have been affected. On Thursday, Brazil’s government crop forecasting agency, Conab, projected a 3.4% decline in 2024/25 sugar production to 44.118 MMT, attributing this to lower yields from drought conditions.

The USDA’s November report projected a 1.5% year-on-year increase in global sugar production for 2024/25 to a record 186.619 MMT, alongside a 1.2% rise in human sugar consumption to 179.63 MMT. Ending stocks for global sugar are expected to decline 6.1% year-on-year to 45.427 MMT.

On the date of publication,
Rich Asplund
did not hold (either directly or indirectly) positions in any securities mentioned in this article. For more information, please view the Barchart Disclosure Policy
here.

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