Sugar Market Faces Declining Prices Amid Varying Production Prospects
March Sugar Futures Hit Multi-Month Lows
March NY world sugar #11 (SBH25) closed down -0.31 (-1.69%) on Wednesday, while March London ICE white sugar #5 (SWH25) fell by -8.70 (-1.81%).
Supply Increase Drives Price Drop
On Wednesday, sugar prices continued a prolonged selloff that has lasted three months. New York sugar futures reached a 4-3/4 month low, and London sugar futures fell to a 3-1/3 year low. This decline stems from an improved outlook for sugar supply. The International Sugar Organization (ISO) adjusted its global sugar deficit forecast for 2024/25 from -3.58 MMT in August to -2.51 MMT, while also increasing its surplus estimate for 2023/24 from 200,000 MT to 1.31 MMT.
India’s Potential Sugar Exports
On December 19, India’s Food Secretary, Sudhanshu Chopra, stated that the country might consider allowing sugar exports if a surplus is confirmed after meeting domestic ethanol blending requirements. Currently, the government anticipates a sugar surplus of approximately 1 MMT this season.
Thailand’s Production Forecast Raises Concerns
The outlook for sugar prices remains pessimistic due to increased production forecasts in Thailand. On October 29, the country’s Office of the Cane and Sugar Board projected a significant 18% increase in sugar production for the 2024/25 season to 10.35 MMT, up from 8.77 MMT in the previous year. Thailand ranks as the world’s third-largest sugar producer and second-largest exporter.
Short Positions Could Spark a Rally
A significant short position held by funds in London sugar could lead to a short-covering rally. According to last Friday’s Commitment of Traders (COT) report, funds increased their net-short position in London sugar by 2,322 contracts to reach a five-year high of 2,515 net shorts by January 7.
India’s Production Decline Supports Prices
Potential price support exists due to lower sugar production forecasts in India, which is the world’s second-largest producer. The Indian Sugar and Bio-energy Manufacturers Association (ISM) reported that sugar output from October 1 to December 31 is down 15.5% year-on-year to 9.54 MMT, which may keep government export restrictions in place and limit global sugar supplies.
Brazil’s Crop Damage Affects Global Supply
Production issues persist in Brazil, stemming from drought and extreme heat last year, which caused extensive fires damaging crops in the main sugar-producing state of São Paulo. The sugar cane industry group Orplana noted that around 2,000 fire incidents affected roughly 80,000 hectares of planted sugarcane. Green Pool Commodity Specialists estimated that the fires resulted in losses of up to 5 MMT of sugarcane. As a result, Brazil’s crop forecasting agency, Conab, revised its 2024/25 sugar production estimate down from 46 MMT to 44 MMT.
India’s Government Actions on Sugar Exports
The Indian government has taken steps to maintain domestic sugar supplies. In late 2023, India ordered sugar mills to halt ethanol production from sugarcane to bolster sugar reserves. This restriction, in place since October 2023, limited sugar exports to just 6.1 MMT during the 2022/23 season, significantly lower than the record 11.1 MMT allowed the prior year. However, the ISM has indicated India could have 2 MMT available for export in the next season and has urged the government to reconsider current restrictions.
Future Projections for Sugar Production
In a recent forecast, the ISO projected global sugar production for 2024/25 at 179.3 MMT, a decrease of 1.1% from 181.3 MMT in 2023/24. Similarly, the USDA anticipates a 1.5% increase in global sugar production to 186.619 MMT for 2024/25 and a rise in human sugar consumption of 1.2% to 179.63 MMT. However, the USDA also predicts a 6.1% decrease in global ending stocks for sugar, lowering the figure 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
