Market Volatility: Sugar Prices Decline Amid Changing Weather Forecasts

Declines Driven by Brazilian Rain Forecasts and Currency Performance

March NY world sugar #11 (SBH25) closed down -0.82 (-3.59%) Wednesday, while December London ICE white sugar #5 (SWZ24) fell -14.10 (-2.44%).

This sharp drop in sugar prices came after reaching one-week highs. Predictions of rain in Brazil alleviated drought fears, leading to long liquidation in sugar futures. Meteorologist Climatempo anticipates significant rainfall in Brazil’s Center-South region, the top sugar-producing area, starting this weekend. The decline worsened after the Brazilian real (^USDBRL) hit a 2-1/4 month low against the dollar, prompting Brazilian sugar producers to increase exports.

Support for sugar prices was noted earlier in the week when food processor Wilmar International revised its 2024/25 Brazil Center-South sugar production estimate down to 38.2 MMT-39.5 MMT from 38.3 MMT-40.8 MMT in September. The reduction pointed to ongoing drought and high temperatures affecting yields.

Additional support came from Unica’s report last Friday, indicating that sugar output in Brazil’s Center-South region during the last half of September dropped by -16.2% year-on-year to 2.829 MMT. However, sugar output for the 2024/25 season through September showed a slight increase of +1.5% at 33.154 MMT.

On September 26, NY sugar prices surged to a 7-1/2 month high, fueled by drought conditions that threatened Brazil’s sugar production. Earlier, on September 20, Rabobank had also reduced its 2024/25 Brazil sugar production forecast from 40.3 MMT to 39.3 MMT due to extreme dryness.

In addition, drought and extreme heat have led to fires damaging crops, particularly in Sao Paulo, Brazil’s leading sugar state. The sugar cane industry group Orplana reported up to 2,000 fire outbreaks, impacting around 80,000 hectares of planted sugarcane, with Green Pool Commodity Specialists estimating losses of about 5 MMT of sugar cane.

Conversely, positive expectations for India’s sugar production may place downward pressure on prices. The Indian Meteorological Department announced that the country received 934.8 mm of rainfall during this year’s monsoon season, the highest in four years and 7.6% above the long-term average. India’s monsoon runs from June to September.

On a bullish note, Brazil’s government crop agency Conab lowered its 2024/25 sugar production estimate to 42 MMT from an earlier forecast of 42.7 MMT, citing reduced yields due to drought conditions.

Another supportive factor for sugar prices surfaced on August 30 when India’s Food Ministry eased restrictions on sugar mills producing ethanol for the upcoming 2024/25 cycle, potentially extending the current sugar export limitations. Since October 2022, India has restricted sugar exports to sustain domestic supplies, allowing mills to export only 6.1 MMT of sugar during the 2022/23 season. On October 3, Indian manufacturers projected a capability to export 2 MMT of sugar next season and called for lifting current export restrictions.

In light of recent figures, the Indian Sugar and Bio-energy Manufacturers Association (ISM) reported on May 13 that sugar production from October-April fell by -1.6% year-on-year to 31.4 MMT. Furthermore, ISM forecasts India’s sugar production for 2024/25 to drop by -2% to 33.3 MMT.

Thailand’s outlook also holds bearish implications for sugar prices, as the Office of the Cane and Sugar Board projected sugar production for 2024/25 to climb by +18% year-on-year to 10.35 MMT, up from 8.77 MMT in the 2023/24 season. This positions Thailand as a key player, being the world’s third-largest sugar producer and the second-largest exporter.

In contrast, the International Sugar Organization (ISO) on August 30 forecasted a global sugar deficit of -3.58 MMT in 2024/25, significantly larger than the estimated -200,000 MT deficit expected for 2023/24. ISO anticipates global sugar production in 2024/25 reaching 179.3 MMT, a -1.1% year-on-year decline from 181.3 MMT in 2023/24.

The USDA’s bi-annual report, released on May 23, predicts a 1.4% rise in global sugar production to a record 186.024 MMT for 2024/25, alongside a +0.8% increase in human sugar consumption to a record 178.788 MMT. However, projected global sugar ending stocks are expected to fall by -4.7% year-on-year to a 13-year low of 38.339 MMT.