May Sugar Prices Rise Despite Bearish Global Production Outlook

May NY world sugar #11 (SBK25) is currently up +0.32 (+1.83%), while August London ICE white sugar #5 (SWQ25) has increased by +6.70 (+1.37%).

Market Dynamics Influencing Sugar Prices

Sugar prices have seen a moderate uptick today, driven by a weaker dollar (DXY00), which has prompted short-covering in sugar futures. Despite this increase, sugar prices have struggled recently, highlighted by a 2-1/2 year nearest-futures low for NY sugar on Tuesday, and London sugar hitting a 2-3/4 month low today. The expectation of abundant rain in India suggests a substantial increase in sugar production, contributing to downward pressure on prices. India’s Ministry of Earth Sciences has projected a monsoon expected to be 105% above the long-term average, occurring from June through September.

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External Factors Impacting Sugar Prices

Concerns over the global trade war are further weighing on sugar prices, as heightened tariffs could elevate costs for consumers. A notable plunge in WTI crude oil (CLK25) last Wednesday to a four-year low has added a bearish outlook for sugar. Lower crude oil prices can reduce ethanol prices as well, encouraging sugar mills to convert more cane into sugar rather than ethanol, which could increase sugar supplies.

Additionally, on March 12, consultant Datagro projected Brazil’s Center-South sugar production for 2025/26 would rise by +6% year-over-year to reach 42.4 million metric tons (MMT). Similarly, Green Pool Commodity Specialists forecast that the global sugar market will transition from a deficit of -3.7 MMT in 2024/25 to a surplus of +2.7 MMT in the 2025/26 crop year.

Indian Sugar Production Forecast and Export Restrictions

In a bearish twist, the Indian government announced on January 20 it would permit its sugar mills to export 1 MMT of sugar this season, relaxing previous restrictions on sugar exports established in 2023. Since October 2023, India has limited sugar exports to ensure sufficient domestic supply. In the 2022/23 season, India allowed mills to export only 6.1 MMT of sugar compared to a record 11.1 MMT in the prior season. However, the Indian Sugar Mills Association (ISMA) projects that 2024/25 sugar production could decline by -17.5% year-over-year to a five-year low of 26.4 MMT.

Production Trends in Thailand and Brazil

Moreover, the outlook for sugar production in Thailand could negatively impact sugar prices. The Office of the Cane and Sugar Board anticipates Thailand’s 2024/25 sugar production will surge by +18% year-on-year to 10.35 MMT, up from 8.77 MMT for the 2023/24 season. Thailand ranks as the world’s third-largest sugar producer and the second-largest exporter.

On a positive note, signs of diminishing global sugar production may bolster prices. Unica reported a 5.3% decline in Brazil’s Center-South cumulative sugar output through March, down to 40.169 MMT year-over-year. Meanwhile, the Indian Sugar and Bio-energy Manufacturers Association revised its 2024/25 India sugar production forecast downward to 26.4 MMT from 27.27 MMT due to lower cane yields.

Global Sugar Deficits and Market Conditions

The International Sugar Organization (ISO) on March 6 raised its 2024/25 global sugar deficit forecast to -4.88 MMT, an increase from a previously estimated deficit of -2.51 MMT. This reflects tightening market conditions compared to a global sugar surplus of 1.31 MMT in 2023/24. Furthermore, the ISO also adjusted its global sugar production forecast downward to 175.5 MMT from 179.1 MMT.

Recent environmental factors have also affected sugar crops in Brazil, particularly in São Paulo where drought and excessive heat resulted in significant fire damage. Green Pool Commodity Specialists estimate that as much as 5 MMT of sugar cane may have been lost. Consequently, Conab, Brazil’s governmental crop forecasting agency, lowered its sugar production estimate for 2024/25 from 46 MMT to 44 MMT due to reduced sugarcane yields.

In its bi-annual report released on November 21, the USDA forecasted a +1.5% increase in global sugar production for 2024/25, reaching a record 186.619 MMT, while human sugar consumption is expected to rise by +1.2% year-over-year to a record 179.63 MMT. Additionally, the USDA anticipates a -6.1% decline in global sugar ending stocks to 45.427 MMT.

On the date of publication, Rich Asplund did not hold any positions in the securities mentioned. All data and information in this article serve solely informational purposes. For further details, please view the Barchart Disclosure Policy.

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