Surge in Sugar Prices Driven by Production Concerns
March NY world sugar #11 (SBH25) increased by +0.64 (+3.32%), while March London ICE white sugar #5 (SWH25) rose by +10.40 (+2.05%).
Factors Influencing Today’s Spike in Sugar Prices
Sugar prices soared today, reaching a two-week high in New York and a one-week high in London. The Indian Sugar and Bio-energy Manufacturers Association (ISM) reported a worrying trend: India, the second-largest sugar producer globally, saw its sugar production decrease by 15.5% year-on-year, from October 1 to December 31, amounting to 9.54 million metric tons (MMT). With this reduced output, the Indian government may impose export restrictions, which could tighten global sugar supplies.
Crude Oil Prices Adding Pressure
Today’s rise in WTI crude oil (CLG25) to a two-and-a-half month high is also supporting sugar prices. With crude oil prices up, ethanol prices benefit, leading global sugar mills to potentially shift more sugarcane toward ethanol production instead of sugar, thereby reducing overall sugar supply.
Trends in Global Sugar Supply
Despite the current rally, sugar prices have been on a downward trend over the past three months due to a more favorable global supply outlook. Recently, NY sugar hit a three-and-a-half-month low, while London sugar reached a two-and-three-quarter-year low. On November 21, the International Sugar Organization (ISO) revised its 2024/25 global sugar deficit forecast down to -2.51 MMT, an improvement from the earlier projection of -3.58 MMT. The ISO also raised its surplus estimate for 2023/24 from 200,000 MT to 1.31 MMT.
Thailand’s Promising Production Outlook
Bearish news for sugar prices comes from Thailand, where the Office of the Cane and Sugar Board estimated a +18% year-on-year increase in sugar production for 2024/25, reaching 10.35 MMT. This comes after Thailand produced 8.77 MMT of sugar in the 2023/24 season.
India’s Possible Export Move
India’s Food Secretary, Chopra, indicated on December 19 that the country may allow sugar exports if domestic ethanol blending requirements are satisfied. This season, India estimates a sugar surplus of about 1 MMT.
Brazil’s Economic Impact on Sugar Market
The Brazilian real (^USDBRL) has weakened, encouraging sugar producers in Brazil to increase exports. The real remains just above its lowest point against the dollar recorded on December 18.
Damage to Brazil’s Sugar Crop
This year’s drought and extreme heat caused significant damage to sugar crops in Brazil, particularly in Sao Paulo, the country’s leading sugar-producing state. The Orplana sugar cane industry group reported that about 2,000 fire outbreaks impacted up to 80,000 hectares of sugarcane. Green Pool Commodity Specialists estimate a loss of up to 5 MMT of sugarcane due to the fires. In response, Brazil’s government crop forecasting agency, Conab, cut its 2024/25 sugar production estimate from 46 MMT to 44 MMT, citing lower yields.
India’s Export Restrictions Remain
Support for sugar prices comes from India’s Food Ministry, which lifted restrictions on sugar mills producing ethanol for the 2024/25 cycle that begins in November. This decision is likely to extend India’s export limits. In December 2022, India mandated sugar mills to halt ethanol production to boost sugar reserves, leading to a sharp decrease in exports. During the 2022/23 season, exports were limited to 6.1 MMT, down from a record 11.1 MMT the season prior. On October 3, the ISM claimed India will have 2 MMT of sugar available for export next season and urged the government to lift current restrictions.
Indian Production Forecasts
The ISM’s projection, released on September 26, indicated a -2% year-on-year decline in India’s 2024/25 sugar production to 33.3 MMT. Meanwhile, the National Federation of India Cooperative Sugar Factories reported a sharp -18% year-on-year drop in sugar production from October 1 to December 15, amounting to 6.1 MMT.
Global Sugar Production Projections
As sugar prices fluctuate, the ISO predicted a modest decrease in global production for 2024/25, projecting it at 179.3 MMT, a -1.1% drop from 181.3 MMT in 2023/24. In contrast, the USDA’s bi-annual report released on November 21 forecasted a +1.5% increase in global sugar production for the same period, reaching a record 186.619 MMT, alongside a +1.2% increase in consumption to 179.63 MMT. Meanwhile, global sugar ending stocks are expected to fall by -6.1% year-on-year 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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
