Sugar Prices Facing Downward Pressure Due to Weakening Brazilian Real
The sugar market witnessed a retreat on Friday with March NY world sugar #11 (SBH24) closing down -0.21 (-0.92%) and May London ICE white sugar #5 (SWK24) closing down -7.60 (-1.23%). The decline was driven by the weakening Brazilian real (^USDBRL), which hit a 2-week low against the dollar. This downward trend in the real is prompting export selling from Brazil’s sugar producers, adding further pressure on sugar prices.
Brazilian Factors Impacting Global Sugar Production
Brazil, a major player in the global sugar industry, reported a significant increase in sugar production, exerting downward pressure on prices. Unica recently revealed that Brazil’s Center-South sugar output surged +68.5% year-over-year in the second half of January, reaching 28,000 metric tons. Moreover, sugar output in the 2023/24 crop year through January rose +25.5% year-over-year to 42.129 million metric tons. The dominance of sugar production over ethanol in Brazil, with more sugarcane being crushed for sugar, has contributed to the current market conditions.
Global Ramifications of India’s Sugar Output
India, a crucial player in the sugar market, is experiencing a decline in sugar production. The Indian Sugar Mills Association (ISMA) reported a -2.5% year-over-year drop in sugar output during the Oct-Feb 15 period. Weather-related challenges, such as below-average monsoon rainfall, have impacted India’s sugar production. With India extending restrictions on sugar exports to ensure domestic supply sufficiency, the global sugar market is undergoing significant shifts.
Thailand’s Drought Woes and the El Nino Factor
Thailand is grappling with a severe drought, leading to a projected 32% year-over-year drop in sugar production to a 17-year low of 7.5 million metric tons. Concerns loom over the impact of the El Nino weather pattern, which historically disrupts sugar production with heavy rains in Brazil and drought in India. The potential repercussions of these weather patterns on global sugar production are a cause for market vigilance.
Projections for Global Sugar Market
The USDA and the International Sugar Organization (ISO) have presented divergent outlooks on global sugar production for the 2023/24 period. While the USDA foresees a record production level, the ISO anticipates a decrease, with the global sugar market poised to shift from surplus to deficit. These projections underscore the dynamic nature of the sugar market and the multifaceted factors at play.
Incidentally, Rich Asplund, the author of this article, does not currently hold positions in any of the securities mentioned. The information provided is for informational purposes only.
The opinions expressed here are solely those of the author and may not align with those of Nasdaq, Inc.
