March Sugar Futures Show Mixed Results Amid Market Fluctuations
Recent Trends Affecting Sugar Prices and Production Estimates
March NY world sugar #11 (SBH25) closed on Thursday with an increase of +0.02 (+0.10%), while March London ICE white sugar #5 (SWH25) fell by -0.20 (-0.04%).
Overall, sugar prices remained relatively stable on Thursday as the recent trend of short-covering in sugar futures started to wane. Over the past week, prices had previously risen due to a stronger Brazilian real (^USDBRL), which led funds to cover their short positions in sugar futures. On Wednesday, the real hit a two-month high against the dollar, making it less appealing for Brazil’s sugar producers to export.
Support for sugar prices has emerged following a downward revision by Czarnikow in its sugar production estimate for Thailand for the 2024/25 season, dropping from 11.6 million metric tons (MMT) to 10.8 MMT.
Commodity funds’ excessive short positions in sugar futures contributed to the recent short-covering rally. According to last Friday’s Commitment of Traders (COT) report, funds increased their net-short positions in NY sugar by 33,828, reaching a five-year high of 139,873. Additionally, net-short positions for London sugar grew by 6,566 to also hit a five-year high of 18,708.
This past Tuesday, sugar prices continued their decline, marking a 3-1/2 month-long sell-off as NY sugar reached a 5-1/4 month nearest-futures low and London sugar a 3-1/3 year low. An improved global sugar supply outlook has been weighing on prices. Last Monday, India announced it would permit its sugar mills to export 1 MMT of sugar this season, easing previous restrictions imposed since October 2023 to maintain domestic supply. For context, India allowed only 6.1 MMT of sugar exports during the 2022/23 season, a sharp drop from a record 11.1 MMT in the prior season.
On November 21, the International Sugar Organization (ISO) downgraded its 2024/25 global sugar deficit forecast to -2.51 MMT from a previous -3.58 MMT estimated in August. Furthermore, the ISO raised its 2023/24 global sugar surplus projection to 1.31 MMT from just 200,000 metric tons.
Bearish sentiments surrounding sugar prices were reinforced by a forecast for increased sugar production in Thailand. The Office of the Cane and Sugar Board in Thailand indicated that production may rise by 18% year-on-year to 10.35 MMT. Thailand produced 8.77 MMT of sugar in the 2023/24 season, maintaining its position as the world’s third-largest sugar producer and second-largest exporter.
On the other hand, there are signs of declining sugar production in India, the second-largest global producer. The Indian Sugar and Bio-energy Manufacturers Association (ISM) indicated that sugar production from October 1 to December 31 was down 15.5% year-on-year to 9.54 MMT. Projections suggest a further drop of 13.8% year-on-year, bringing the expected output to a five-year low of 27.6 MMT.
Challenges in Brazil, including drought and excessive heat, have also impacted sugar crops. Reports indicate that fires have devastated sugar crops in Brazil’s top-producing state of Sao Paulo, with industry sources noting as many as 2,000 fire outbreaks affecting around 80,000 hectares of planted sugarcane. Green Pool Commodity Specialists estimate a loss of up to 5 MMT of sugar cane from these fires. Additionally, Brazil’s government crop forecasting agency, Conab, revised its 2024/25 sugar production estimate down to 44 MMT from 46 MMT, citing the poor yield conditions.
Despite these challenges, the ISO’s forecast on August 30 projected global sugar production for 2024/25 at 179.3 MMT, reflecting a decrease of 1.1% year-on-year from 181.3 MMT in 2023/24.
As for the USDA, its bi-annual report released on November 21 suggested that worldwide sugar production could rise by 1.5% year-on-year, reaching a record 186.619 MMT. Human sugar consumption is also expected to grow, with a projection of a 1.2% increase to a record 179.63 MMT. However, the forecast indicates a decline in global sugar ending stocks 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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