Sugar Prices Rise Amid Crop Concerns in Brazil
Market Trends and Recent Developments
March NY world sugar #11 (SBH25) has increased by +0.38 (+1.92%), while March London ICE white sugar #5 (SWH25) is up by +1.70 (+0.31%).
Sugar prices have seen moderate increases today, with London sugar reaching a 2-month high. Concerns regarding Brazil’s sugar crop are elevating prices. Alvean, the world’s largest sugar trader, reported that inadequate rainfall in Brazil is causing some sugarcane to underdevelop. If dry conditions continue, the sugar harvest set to begin in April may face delays, negatively affecting production. Additionally, fund short covering has contributed to the rise in London sugar futures, especially since today marks the last trading day for the March London sugar contract.
Brazilian Real and Short-Covering Effects
The Brazilian real (^USDBRL) has strengthened over the past three weeks, fueling fund short covering in sugar. Last Thursday, this trend led to an 8-week high for sugar prices. Currently, the real is just below last Friday’s 3-month high, discouraging exports from Brazil’s sugar producers.
Support for sugar prices also comes from earlier reports indicating a decrease in India’s sugar production for the 2024/25 season. Centrum noted a decline of -12.2% year-on-year, projecting production to reach 16.5 million metric tons (MMT) from October 1 to January 31.
Global Sugar Supply Update
On a negative note, Green Pool Commodity Specialists forecast that the global sugar market will shift to a surplus of +2.7 MMT in the 2025/26 crop year, reversing the -3.7 MMT deficit expected in 2024/25.
It’s important to note that sugar prices had been descending for four months. For example, on January 21, NY sugar recorded its lowest level in 5-3/4 months, while London sugar hit a 3-1/2 year low. An improving global sugar supply outlook is contributing to the downward pressure on prices. The Indian government recently announced it would permit sugar mills to export 1 MMT this season, relaxing restrictions that had been imposed since October 2023 to ensure domestic supplies. Last season, India exported a record 11.1 MMT, but the current season’s exports are expected to be limited to 6.1 MMT.
Changing Forecasts and Regional Impacts
On November 21, the International Sugar Organization (ISO) revised its 2024/25 global sugar deficit forecast down to -2.51 MMT, an improvement from an earlier August forecast of -3.58 MMT. The ISO has also increased its 2023/24 surplus estimate to 1.31 MMT, up from 200,000 metric tons in August.
Challenges and Setbacks in Brazil
In Thailand, a projected increase in 2024/25 sugar production may exert downward pressure on prices. The Cane and Sugar Board announced an anticipated jump of +18% year-over-year to 10.35 MMT, following 8.77 MMT produced in the previous 2023/24 season. Thailand ranks as the world’s third-largest sugar producer and the second-largest exporter.
Despite potential increases in production, there are signs of damage from past disasters. Recent droughts and severe heat caused approximately 2,000 fire outbreaks in Brazil’s top sugar state, Sao Paulo, affecting around 80,000 hectares of sugarcane. Estimates suggest a loss of up to 5 MMT of sugarcane due to these fires. Consequently, Brazil’s government agency, Conab, reduced its 2024/25 sugar production estimate from 46 MMT to 44 MMT.
Recent reports also indicate a decline in India’s sugar production, forecasting a -15% decrease to a 5-year low of 27.27 MMT for the 2024/25 season.
Future Production Projections
In its bi-annual report released on November 21, the USDA projected a global sugar production rise of +1.5% year-over-year to reach a record 186.619 MMT. Additionally, it anticipates a +1.2% increase in human sugar consumption for the 2024/25 period, also reaching a record at 179.63 MMT. However, the USDA forecasts that ending stocks will decline by -6.1% year-on-year to 45.427 MMT.
On the date of publication, Rich Asplund did not hold any positions in the mentioned securities. All information in this article is for informational purposes. For more details, please view the Barchart Disclosure Policy here.
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