Sugar Prices See Modest Gains Amid Supply Concerns
Market Update: March NY world sugar #11 (SBH25) finished up +0.12 (+0.63%) on Friday, while March London ICE white sugar #5 (SWH25) rose by +1.90 (+0.38%).
On Friday, sugar prices climbed moderately. This rally was largely due to traders covering short positions as WTI crude oil prices (CLG25) surged over +3%, reaching a three-month high. As crude oil prices strengthen, ethanol becomes more profitable, potentially leading sugar mills to allocate more sugarcane for ethanol production instead of sugar, which could reduce sugar supplies in the market.
Prior to this, on Thursday, NY sugar hit a four-month low, while London sugar dipped to a two-and-three-quarter-year low. Prices have been on a downward trend over the last three months, driven by a more promising sugar supply outlook. The International Sugar Organization (ISO) revised its 2024/25 global sugar deficit forecast down to -2.51 MMT from the previous estimate of -3.58 MMT made in August. Additionally, the ISO raised its 2023/24 global sugar surplus estimate to 1.31 MMT, a significant increase from August’s +200,000 MT projection.
India’s Food Secretary Chopra announced on December 19 that the country may permit sugar exports once there is a surplus, following the satisfaction of domestic ethanol blending requirements. Currently, the Indian government anticipates a sugar surplus of around 1 MMT this season.
The anticipated rise in sugar production in Thailand adds bearish pressure to sugar prices. Thailand’s Office of the Cane and Sugar Board projected an 18% year-on-year increase in sugar production for 2024/25, estimating a total of 10.35 MMT. This follows last season’s production of 8.77 MMT. Thailand ranks as the world’s third-largest sugar producer and the second-largest exporter.
Last Thursday, sugar prices briefly spiked to a three-week high due to decreased sugar production signs from India, the second-largest sugar producer globally. According to the Indian Sugar and Bio-energy Manufacturers Association (ISM), sugar production in India fell by 15.5% year-on-year to 9.54 MMT during the October 1 to December 31 period. This reduction in output may lead the Indian government to maintain export restrictions, impacting worldwide sugar supplies.
Last year, Brazil faced drought and extreme heat, which caused destructive fires in São Paulo, the nation’s main sugar-producing state. The sugarcane industry group Orplana reported that nearly 2,000 fire outbreaks impacted about 80,000 hectares of sugarcane. Green Pool Commodity Specialists estimate that as much as 5 MMT of sugarcane may have been lost. Brazil’s government crop forecasting agency, Conab, revised its 2024/25 sugar production forecast down to 44 MMT from 46 MMT, noting lower yields due to adverse weather. Reports from Unica indicated a 5.1% year-on-year decrease in cumulative sugar output from the Center-South region through mid-December, totaling 39.711 MMT.
Support for sugar prices was bolstered on August 30 when India’s Food Ministry lifted limitations on sugar mills producing ethanol for the 2024/25 season commencing in November. This change might extend India’s export restrictions as the country aims to bolster its sugar reserves. In late 2023, India had ordered mills to halt the use of sugarcane for ethanol to maintain sufficient domestic supplies, allowing only 6.1 MMT of sugar exports in the 2022/23 season. This was down from a record 11.1 MMT the previous season, although projections from ISM on October 3 indicated that India might be able to export 2 MMT next season provided restrictions are relaxed.
On September 26, ISM projected a 2% decline in India’s sugar production for 2024/25, estimating it at 33.3 MMT. Their report indicated that sugar reserves for the 2023/24 season would reach 8.4 MMT by September 30, lower than a previous forecast of 9.1 MMT. The National Federation of India Cooperative Sugar Factories Ltd also reported a significant 18% decrease in sugar production to 6.1 MMT for the period from October 1 to December 15.
As a further positive indication for prices, the ISO, on August 30, revised its forecast for global sugar production in 2024/25 to 179.3 MMT, a slight decline of 1.1% from the previous year’s 181.3 MMT.
Furthermore, the USDA’s bi-annual report released on November 21 anticipates a 1.5% increase in global sugar production to a record 186.619 MMT for 2024/25, along with a 1.2% rise in global human sugar consumption, projecting it at a record 179.63 MMT. The USDA also expects that global sugar ending stocks will decrease by 6.1% to 45.427 MMT for the same period.
On the date of publication,
Rich Asplund
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
