Sugar Prices Surge as Demand for Short Covering Grows
On March 25, NY world sugar #11 (SBH25) rose by +0.50 (+2.753%), while March London ICE white sugar #5 (SWH25) increased by +9.10 (+1.91%).
Recent Rally Driven by Brazilian Real’s Strength
Sugar prices saw a substantial rise for the second consecutive day, reaching one-week highs. Short covering in sugar futures intensified as the Brazilian real (^USDBRL) climbed to a six-week high, creating a poor environment for export sales from Brazil’s sugar producers.
Commodity Funds Boost Short Positions
Many commodity funds hold excessive short positions in sugar futures, which could trigger further short-covering rallies. According to last Friday’s Commitment of Traders (COT) report, funds increased their net-short NY sugar position by 47,005 contracts to a five-year high of 106,045 net-short positions as of January 14. Additionally, net-short positions for London sugar rose by 9,627, also hitting a five-year high of 121,425 net-short positions.
Sustained Sell-off Amid Supply Improvements
On Tuesday, sugar prices continued a 3.5-month decline, with NY sugar hitting its lowest point in five months, while London sugar fell to its lowest in over three years. The improved outlook for global sugar supply is placing downward pressure on prices. India announced on Monday that it would permit sugar mills to export one million metric tons (MMT) this season, easing restrictions that had been in place since October 2023. Last year, India had limited exports to maintain domestic supply, allowing only 6.1 MMT during the 2022/23 season, down from a record 11.1 MMT the year before.
International Sugar Organization Forecasts Deficit Reduction
On November 21, the International Sugar Organization (ISO) adjusted its 2024/25 global sugar deficit forecast to -2.51 MMT, improving from an earlier projection of -3.58 MMT. The ISO also raised its 2023/24 global sugar surplus estimate to 1.31 MMT, up from 200,000 MT.
Thailand’s Production Surge Impacts Global Market
Thailand’s anticipated increase in sugar production adds more bearish sentiment to the market. The Office of the Cane and Sugar Board projected that the country’s production for 2024/25 would increase by 18% year-on-year to 10.35 MMT, up from 8.77 MMT during the 2023/24 season. Thailand ranks as the third-largest sugar producer globally and the second-largest exporter.
India’s Decreased Output Provides Support
Despite the challenges, supportive factors exist for sugar prices, including signs of reduced production in India, the world’s second-largest producer. As reported on January 9, India’s sugar production for 2024/25 decreased by 15.5% year-on-year, totaling 9.54 MMT. Projections indicate a further drop of 13.8% for the upcoming year, reaching a five-year low of 27.6 MMT.
Challenges in Brazil’s Sugar Industry
Brazil’s sugar industry also faces difficulties due to adverse weather last year, which led to widespread fires in Sao Paulo, the country’s top sugar-producing state. The sugar cane industry group Orplana reported up to 2,000 fire incidents affecting around 80,000 hectares of sugarcane. Estimates suggest that about 5 MMT of sugar cane may have been lost. Brazil’s government forecasting agency, Conab, revised its 2024/25 sugar production estimate down to 44 MMT from 46 MMT due to poor yields caused by these conditions. Unica reported that total 2024/25 Center-South sugar output through December has fallen 5.4% year-on-year to 39.78 MMT.
Global Production Outlook
In a supporting factor for sugar prices, the ISO projected global production for 2024/25 at 179.3 MMT, a decrease of 1.1% from the 181.3 MMT recorded in 2023/24. Conversely, the USDA’s bi-annual report released on November 21 forecasted a record increase for global sugar production for 2024/25, expected to rise by 1.5% year-on-year to 186.619 MMT. The USDA also predicts an uptick of 1.2% in global human sugar consumption, reaching a record 179.63 MMT, while ending stocks for that same period are anticipated to decline by 6.1% year-on-year to 45.427 MMT.
As of the publication date, Rich Asplund did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are intended solely for informational purposes. For more details, 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.
