Sugar Prices Drop as Market Faces Weak Demand and Increased Supply

May NY world sugar #11 (SBK25) closed Tuesday down -0.12 (-0.66%), while May London ICE white sugar #5 (SWK25) fell by -6.80 (-1.30%).

This decline marks a continuation of the downward trend in sugar prices, which have reached three-week lows. A drop in WTI crude (CLJ25), which hit a two-and-a-half-month low on Tuesday, has contributed to this fall. Lower crude prices reduce ethanol costs, incentivizing global sugar mills to prioritize sugar production over ethanol, thus increasing sugar supply.

Demand Concerns Pressure Sugar Prices

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Concerns about demand are also impacting sugar prices, following record deliveries by traders Wilmar International Ltd and Sucres et Denrees SA. These companies took delivery of 1.7 million metric tons (MMT) of raw sugar against the March NY futures contract that expired last Friday. Such large deliveries often indicate a bearish outlook, suggesting sellers have limited alternatives for sales.

Sugar Production Projections Affect Markets

The market also reacted negatively to predictions from sugar trader Czarnikow, which forecasted Brazil’s sugar production for the 2025/26 season to reach a record 43.6 MMT. The firm noted that sugar is becoming more profitable than ethanol production, encouraging higher output.

Meanwhile, the International Sugar Organization (ISO) increased its global sugar deficit forecast for 2024/25 to -4.88 MMT from -2.51 MMT in November, showing a shift from the previous year’s surplus of 1.31 MMT. The ISO also revised its 2024/25 global sugar production estimate downwards to 175.5 MMT from 179.1 MMT announced in November. In a further forecast, Green Pool Commodity Specialists on February 5 predicted a shift to a surplus of +2.7 MMT in the 2025/26 crop year compared to a deficit of -3.7 MMT in 2024/25.

Market Reactions and Historical Context

Last week, sugar prices climbed to a two-and-a-half-month high, fueled by a rally from mid-January onwards. The strengthening of the Brazilian real (^USDBRL) against the dollar from mid-December to mid-February discouraged Brazilian sugar exports and prompted significant short-covering in sugar futures.

Supply Limitations from India and Thailand’s Outlook

Limitations in supply are indicated by India’s latest figures, which show that sugar production has dropped by 14% year-over-year to 21.98 MMT so far in the marketing year from October 1 through February 28, according to the India Sugar and Bio-Energy Manufacturers Association. However, during January, the Indian government announced permission for its sugar mills to export 1 MMT this season, easing previously imposed restrictions.

India had limited its sugar exports since October 2023 to ensure sufficient domestic supplies, allowing only 6.1 MMT during the 2022/23 season, a drop from a record 11.1 MMT the previous year. The India Sugar Mills Association (ISMA) has projected that India’s 2024/25 sugar production could decline by 15% year-over-year to a five-year low of 27.27 MMT.

In contrast, Thailand’s forecast for increased sugar production looks bearish for prices. The Office of the Cane and Sugar Board stated on October 29 that Thailand’s production for 2024/25 may surge by 18% year-over-year to 10.35 MMT, having produced 8.77 MMT in the 2023/24 season. Thailand is the third-largest sugar producer and the second-largest exporter globally.

Brazilian Crop Losses and Future Expectations

Drought and extreme heat last year caused devastating fires in Brazil’s leading sugar-producing state of Sao Paulo, resulting in an estimated loss of up to 5 MMT of sugar cane, according to Green Pool Commodity Specialists. Consequently, Brazil’s government crop forecasting agency, Conab, has lowered its 2024/25 sugar production estimate from 46 MMT to 44 MMT, citing poorer yields due to adverse weather. As reported by Unica, cumulative sugar output in Brazil’s Center-South region fell by 5.6% year-on-year to 39.812 MMT through mid-February.

The USDA’s bi-annual report, released on November 21, projected that global sugar production for 2024/25 will increase by 1.5% year-over-year to a new high of 186.619 MMT, while global consumption is expected to rise by 1.2% to 179.63 MMT. The USDA also forecasted a 6.1% decline in global sugar ending stocks for 2024/25 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 in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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