Sugar Prices Surge Amid Short-Covering Rally
March NY world sugar #11 (SBH25) closed up +0.33 (+1.77%) on Friday, while March London ICE white sugar #5 (SWH25) saw a gain of +11.30 (+2.32%).
Market Dynamics: Strength in the Brazilian Real
Sugar prices experienced a three-day rally, reaching their highest levels in a week and a half. Over this period, the strengthening of the Brazilian real (^USDBRL) has led to significant short covering in sugar futures. The real hit a 1-3/4 month high on Friday, which has made Brazilian exporters hesitant to sell.
Fund Positioning Drives Price Movements
The recent surge has been fueled by a notably excessive short position held by commodity funds. The latest Commitment of Traders (COT) report revealed that funds increased their net-short NY sugar position by 47,005 contracts, bringing it to a five-year high of 106,045. Similarly, London sugar positions rose by 6,566 contracts to a five-year high of 18,708 net shorts.
A Downturn Precedes the Rally
Just last Tuesday, prices slumped to lows not seen in five months for NY sugar and 3-1/3 years for London sugar. A forecast of improving global sugar supplies has played a key role in driving prices down. Earlier this week, India announced it would allow its sugar mills to export 1 million metric tons (MMT) of sugar this season, lifting restrictions that had been imposed since October 2023. Last season, India’s sugar exports were limited to 6.1 MMT, down from a record 11.1 MMT the year before.
Revised Global Sugar Forecasts
The International Sugar Organization (ISO) has recently adjusted its forecasts for the global sugar market. On November 21, ISO reduced its 2024/25 global sugar deficit forecast to -2.51 MMT, compared to an earlier estimate of -3.58 MMT. It also raised its 2023/24 global sugar surplus estimate to 1.31 MMT from 200,000 metric tons.
Concerns About Thai Production
Thailand is projected to see a significant increase in sugar production, which could negatively impact prices. The Office of the Cane and Sugar Board forecasts that production in 2024/25 will be up 18% year-over-year to 10.35 MMT. In the previous 2023/24 season, Thailand produced 8.77 MMT, further solidifying its position as the world’s third-largest producer and second-largest exporter of sugar.
Challenges in Indian Sugar Production
Conversely, India is facing challenges that may limit its sugar production. The Indian Sugar and Bio-energy Manufacturers Association (ISM) reported a 15.5% year-over-year decline in production, reaching 9.54 MMT between October 1 and December 31. For the 2024/25 season, the ISM projects a decline of 13.8% to a five-year low of 27.6 MMT.
Natural Disasters Impacting Brazil
Brazil’s sugar industry has also been hit by adverse weather. Last year, drought and severe heat led to devastating fires in São Paulo, affecting around 80,000 hectares of sugarcane. Green Pool Commodity Specialists estimate a loss of around 5 MMT of sugarcane due to these fires. Consequently, Brazil’s government crop forecasting agency, Conab, has reduced its sugar production estimate for 2024/25 from 46 MMT to 44 MMT, attributing the decrease to lower yields.
Looking Ahead: Production and Consumption Trends
In August, the ISO projected a decline in global sugar production to 179.3 MMT for 2024/25, down 1.1% from 181.3 MMT in the previous year. However, the USDA’s November 21 report forecasts a different trend, estimating that global sugar production will increase by 1.5% to a record 186.619 MMT for 2024/25, with human consumption increasing to a record 179.63 MMT. The USDA also anticipates a 6.1% decline in ending stocks to 45.427 MMT for the same period.
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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