Sugar Prices Surge Due to Drought Concerns in Brazil
Sugar prices have climbed today, hitting their highest levels in a week, as a lack of rainfall looms over Brazil’s vital sugar-growing region.
March NY world sugar #11 (SBH25) is up +0.54 (+2.55%), while March London ICE white sugar #5 (SWH25) has increased by +10.80 (+1.96%).
Recent weather forecasts indicate below-normal rain in Brazil’s Center-South, leading to a spike in sugar prices. This region is crucial for sugar production in Brazil, and it has experienced a significant drop in output. Last Wednesday, Unica reported a staggering 59.2% year-on-year decline in sugar production for the first half of November, dropping to 898 MT. Cumulatively, through mid-November, sugar production for the 2024/25 season in the Center-South is down 3.0% year-on-year, totaling 38.274 MMT.
Factors such as drought and high temperatures have wreaked havoc on the sugar crops in Brazil’s top-producing state, Sao Paulo. According to the sugar cane industry group Orplana, about 2,000 fire outbreaks have impacted up to 80,000 hectares of planted sugarcane. Green Pool Commodity Specialists estimate that as much as 5 MMT of sugarcane could have been lost due to these fires. Last Thursday, Conab, Brazil’s government crop forecasting agency, adjusted its sugar production estimate down from 46 MMT to 44 MMT for the 2024/25 season, attributing this shift to lower sugarcane yields caused by adverse weather conditions.
In contrast, NY sugar recently hit a 2-1/2 month low, and London sugar fell to a 3-week low as the overall supply situation had seemed to improve. On November 21, the International Sugar Organization (ISO) revised its global sugar deficit forecast for 2024/25 to -2.51 MMT, significantly better than the -3.58 MMT deficit predicted in August. Furthermore, the ISO also increased its global sugar surplus estimate for the 2023/24 season, projecting it to reach 1.31 MMT, up from a previous August estimate of 200,000 MT.
The weakness of the Brazilian real (^USDBRL) has contributed to lower sugar prices as it fell to an all-time low against the dollar last Friday. This weakening currency incentivizes Brazilian sugar producers to export more products.
In a contrasting development, the outlook for Thai sugar production appears strong. On October 29, Thailand’s Office of the Cane and Sugar Board forecasted a remarkable 18% year-on-year increase in sugar output, anticipating production to reach 10.35 MMT for the 2024/25 season, following 8.77 MMT in 2023/24. As the world’s third-largest sugar producer and second-largest exporter, Thailand’s growing output may exert downward pressure on global sugar prices.
India has taken steps that may support sugar prices. On August 30, the country’s Food Ministry lifted earlier restrictions that affected sugar mills producing ethanol for the 2024/25 season, which may prolong India’s sugar export curbs. Last December, India mandated that sugar mills halt ethanol production from sugarcane for the 2023/24 supply year to bolster domestic sugar reserves.
India restricted sugar exports beginning October 2023 to ensure sufficient domestic supply. For the 2022/23 season ending September 30, India allowed sugar mills to export only 6.1 MMT, a notable drop from the previous season’s record of 11.1 MMT. However, on October 3, the Indian Sugar and Bio-energy Manufacturers Association (ISM) indicated that India would have approximately 2 MMT available for export next season and requested the government to revise its current sugar export restrictions.
Further insights provided by the ISM on May 13, revealed that India’s sugar production from October to April dropped by 1.6% year-on-year to 31.4 MMT. Moreover, projections suggest that India’s production may decrease by 2% year-on-year to 33.3 MMT for the 2024/25 season, accompanied by lower sugar reserves at 8.4 MMT, versus an earlier forecast of 9.1 MMT.
In another noteworthy update, the International Sugar Organization (ISO) projected a global sugar production for 2024/25 at 179.3 MMT, a 1.1% decrease from the 181.3 MMT estimated for 2023/24. Meanwhile, the USDA’s bi-annual report, released on November 21, forecasts that global sugar production will increase by 1.5% year-on-year to a record 186.619 MMT for 2024/25, with consumption expected to rise by 1.2% to a record 179.63 MMT. Ending stocks for global sugar in 2024/25 are projected to decline by 6.1% year-on-year to 45.427 MMT.
On the date of publication,
Rich Asplund
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