Sugar Prices Rise Amid Drought Concerns and Global Outlook

May NY world sugar #11 (SBK25) is currently up +0.17 (+0.95%), while August London ICE white sugar #5 (SWQ25) has increased by +6.60 (+1.31%).

Sugar Prices Higher Due to Weather and Production Factors

Today’s sugar prices are showing moderate gains, with London sugar hitting a two-week high. Concerns over dry weather in Brazil may lead to reduced sugarcane yields, consequently boosting prices. Brazilian weather forecaster Somar Meteorologia has indicated that rain chances in the sugar-growing regions of Brazil remain limited through the coming week.

Support for sugar prices also stems from a recent report by the Indian Sugar and Bio-Energy Manufacturers Association (ISMA). They revealed that sugar production in India from October 1 to April 15 totaled 25.5 million metric tons (MMT), marking an 18% decline compared to the same timeframe last year.

Market Pressure from Expected Rainfall in India

Last week, sugar prices faced downward pressure, as NY sugar reached a 2.5-year low and London sugar posted a three-month low. The forecast for an abundant rainfall in India, which could lead to a larger sugar crop, is dampening sugar prices. Last Tuesday, India’s Ministry of Earth Sciences predicted an above-normal monsoon, forecasting total rainfall at 105% of the long-term average, as the monsoon season runs from June through September.

Bearing Outlooks from Brazil and Global Markets

Further pressure on sugar prices comes from the USDA’s Foreign Agricultural Service (FAS). Their projections suggest Brazil’s sugar production for 2025/26 will rise by 2.3% year-over-year to 44.7 MMT, up from 43.7 MMT the previous season.

Concerns about a global trade war may additionally impact economic growth, raising sugar prices for consumers and reducing demand. Consultant Datagro also projected on March 12 that sugar production in Brazil’s Center-South would increase by 6% year-over-year to 42.4 MMT for the 2025/26 season. Moreover, Green Pool Commodity Specialists noted a potential global sugar surplus of 2.7 MMT for the 2025/26 crop year, shifting from a deficit of 3.7 MMT in 2024/25.

India’s Export Policies and Harvest Trends

A bearish factor has emerged from the Indian government’s decision to permit sugar mills to export 1 MMT of sugar this season, easing restrictions previously imposed. Since October 2023, exports were limited to maintain domestic supplies, with mills allowed to export only 6.1 MMT in the 2022/23 season, down from 11.1 MMT the season before. However, the ISMA anticipates a decline in India’s sugar production for 2024/25 to 26.4 MMT, representing a 17.5% yearly decrease and a five-year low.

Impact of Thailand’s Increased Production

The situation is further complicated by Thailand, which reported a 14% year-over-year increase in sugar production for 2024/25, rising to 10.00 MMT. Thailand ranks as the third-largest sugar producer globally and the second-largest exporter.

Supporting Factors in Global Sugar Production

Counterbalancing these pressures, signs of reduced global sugar production could support prices. Unica reported that Brazil’s Center-South sugar output through March dipped by 5.3% year-over-year to 40.169 MMT. Similarly, the ISMA reduced its 2024/25 production forecast for India to 26.4 MMT, down from 27.27 MMT, attributing the decrease to lower sugarcane yields.

Global Market Trends and Projections

The International Sugar Organization (ISO) recently adjusted its global sugar deficit forecast for 2024/25 to -4.88 MMT, up from -2.51 MMT predicted in November. This indicates a tightening market compared to the 2023/24 surplus of 1.31 MMT. The ISO also lowered its 2024/25 global sugar production forecast to 175.5 MMT.

Environmental Impacts on Sugar Production in Brazil

Environmental challenges have plagued Brazil in recent years. Drought and excessive heat led to destructive fires in São Paulo, Brazil’s top sugar-producing state. Green Pool Commodity Specialists estimated that these incidents may have resulted in the loss of approximately 5 MMT of sugarcane. The Brazilian government’s crop forecasting agency, Conab, projected a decrease in sugar production for 2024/25, estimating a 3.4% year-over-year decline to 44.118 MMT due to adverse weather conditions affecting yields.

In its bi-annual report released on November 21, the USDA projected global sugar production for 2024/25 to increase by 1.5% year-over-year, reaching a record 186.619 MMT. They also forecast a rise in human sugar consumption to 179.63 MMT, with global ending stocks expected to decrease by 6.1% to 45.427 MMT.

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 provided herein are for informational purposes only. For further information, please refer to the Barchart Disclosure Policy.

The views and opinions expressed herein are the opinions of the author and do not necessarily reflect those of any affiliated companies.