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Brazil’s Declining Sugar Production Drives Prices Higher

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Sugar Prices Edge Up Amid Brazil’s Production Challenges

March NY world sugar #11 (SBH25) closed on Friday at +0.08 (+0.36%), while December London ICE white sugar #5 (SWZ24) rose by +2.10 (+0.37%).

Brazil’s Production Declines Affect Prices

Sugar prices saw slight increases on Friday, driven by reports of reduced sugar output in Brazil. Unica disclosed that production in Brazil’s Center-South region fell by -16.2% year-on-year in the second half of September, totaling 2.829 million metric tons (MMT). Despite this, overall sugar output for the region in 2024/25 is up by +1.5% to 33.154 MMT.

Currency Fluctuations Impact Export Decisions

However, sugar prices began to decline as the Brazilian real (^USDBRL) dropped to a one-month low against the U.S. dollar, prompting increased exports from Brazilian producers. Prices dipped to three-week lows on Wednesday due to predicted rain in Brazil, easing drought fears. Maxar Technologies noted that rainfall would continue in Brazil’s top sugar-producing area this week.

Market Position Raises Concerns

A significant long position by funds in London white sugar could heighten the risk during any price drop. Last week’s Commitment of Traders (COT) data indicated that funds raised their net-long positions in London white sugar by 4,460 in the week ending October 1, leading to a four-year high of 40,192 net-long positions.

Concerns Over Production Forecasts

On September 26, NY sugar reached a seven-and-a-half-month high as drought conditions in Brazil diminished production expectations. Rabobank revised its forecast for 2024/25 Brazilian sugar production down to 39.3 MMT due to severe dryness, down from 40.3 MMT.

Fires in Brazil’s Sugarcane Region

Drought and high temperatures have resulted in numerous fires damaging crops in São Paulo, Brazil’s largest sugar-producing state. Orplana, a sugar cane industry group, reported around 2,000 fires affected up to 80,000 hectares of sugarcane, with Green Pool Commodity Specialists estimating a potential loss of 5 MMT of sugarcane due to these fires.

Potential Production Gains from India’s Monsoon

Meanwhile, optimism is growing for India’s sugar crop thanks to above-average monsoon rains, which could lower sugar prices. The Indian Meteorological Department reported that rainfall reached 934.8 mm, the highest in four years and 7.6% over the long-term average, during the monsoon season ending September 30.

Adjustments in Brazil’s Production Forecast

On a cautious note, Conab, Brazil’s crop forecasting agency, cut its overall 2024/25 sugar production estimate to 42 MMT from 42.7 MMT, citing lower sugarcane yields from adverse weather.

Export Constraints Still Apply in India

Positive news for sugar prices came when India’s Food Ministry lifted restrictions for sugar mills producing ethanol for the 2024/25 year. Last December, India had halted the use of sugarcane for ethanol production to boost sugar reserves and has limited sugar exports since October 2023 to keep domestic supplies stable. Only 6.1 MMT of sugar was allowed for export during the 2022/23 season, a decrease from the previous record of 11.1 MMT. Recently, the Indian Sugar and Bio-energy Manufacturers Association (ISM) indicated that India will have 2 MMT available for export next season and has asked the government to lift its current export limitations.

Future Expectations for Indian Sugar Production

According to ISM, India’s sugar production for the 2023/24 period fell by -1.6% year-on-year to 31.4 MMT. Projections for the 2024/25 period anticipate a further decline of -2% year-on-year to 33.3 MMT. The ISM also revised the expected sugar reserves for 2023/24 downward from 9.1 MMT to 8.4 MMT as of September 30.

Thailand’s Positive Forecasts Weigh on Market

In another market factor, Thailand anticipates an increase in sugar production. The Office of the Cane and Sugar Board projected that 2024/25 production could surge by +18% year-on-year to 10.35 MMT. Thailand is a key player as the world’s third-largest producer and the second-largest exporter of sugar.

Global Sugar Deficits Ahead

The International Sugar Organization (ISO) provided a bullish indicator, forecasting a 2024/25 global sugar deficit of -3.58 MMT, a significant increase from the deficit of -200,000 MT for 2023/24. The ISO predicts global sugar production will decrease by -1.1% year-on-year to 179.3 MMT.

USDA’s Contradictory Projections

Countering some of these predictions, the USDA expects global sugar production to increase by +1.4% year-on-year to 186.024 MMT for 2024/25, with consumption anticipated to rise by +0.8% year-on-year to a record 178.788 MMT. Ending stocks for this period are likely to fall by -4.7% to a 13-year low of 38.339 MMT.

More Sugar News from Barchart

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 are for informational purposes only. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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