Sugar Prices Rally as Global Production Challenges Loom
Strong Gains in March Sugar Prices Amid Supply Concerns
March NY world sugar #11 (SBH25) closed up +0.26 (+1.24%) on Friday, while May London ICE white sugar #5 (SWK25) increased by +4.80 (+0.86%). Sugar prices have been on the rise, reaching their highest levels in over two months. This rally follows the report from the India Sugar and Bio-Energy Manufacturers Association, which stated that India’s sugar production has dropped by -12% year-over-year to 19.7 million metric tons (MMT) since the marketing year began on October 1.
Brazil’s Currency Strength and Production Concerns
Support for sugar prices has also come from the Brazilian real (^USDBRL), which has rallied over the last two months. This rise in the currency seems to have discouraged Brazilian sugar producers from exporting, leading to increased short-covering in sugar futures. Notably, earlier this week, the Brazilian real reached a three-month high against the US dollar.
Weather Threatens Brazil’s Sugar Harvest
Last week, comments from Alvean, the world’s largest sugar trader, contributed to the bullish sentiment. The firm highlighted that below-average rainfall in certain Brazilian regions has left sugarcane crops underdeveloped. If the light rain continues, the upcoming sugar harvest set to start in April might face delays, further jeopardizing sugar production.
India’s Export Restrictions and Potential Downturn
In a contrasting move, the Indian government announced on January 20 that it would permit sugar mills to export 1 MMT of sugar in the current season, easing previously imposed restrictions. Throughout 2023, India has limited sugar exports to ensure adequate domestic supply. In the last season, sugar mills exported only 6.1 MMT compared to a record 11.1 MMT the previous year. However, the India Sugar Mills Association (ISMA) anticipates a -15% year-over-year decline in India’s 2024/25 sugar production, forecasting a five-year low of 27.27 MMT.
Thailand’s Farmers Ready for Increased Production
Looking globally, Thailand’s sugar output outlook adds bearish pressure on prices. The Office of the Cane and Sugar Board projected that Thailand’s production will rise by +18% year-over-year, reaching 10.35 MMT for the 2024/25 cycle. This increase comes after producing 8.77 MMT in the 2023/24 season, making Thailand the world’s third-largest sugar producer and the second-largest exporter.
Brazil’s Natural Disasters and Crop Damage
Last year saw drought and extreme heat lead to devastating fires in Brazil, particularly in São Paulo, affecting up to 80,000 hectares of sugarcane. The industry group Orplana reported that around 2,000 fires destroyed significant portions of crops, with Green Pool Commodity Specialists estimating losses of up to 5 MMT of sugarcane. Brazil’s government crop forecasting agency, Conab, has adjusted its estimates, lowering predicted sugar production for the 2024/25 season from 46 MMT to 44 MMT due to these adverse conditions.
Global Sugar Supply and Demand Projections
According to the USDA’s bi-annual report released on November 21, global sugar production is expected to climb by +1.5% year-over-year to reach a record 186.619 MMT in the 2024/25 season. Human consumption is also set to increase by +1.2% year-over-year, reaching a record of 179.63 MMT. However, projected global sugar ending stocks are forecasted to drop by -6.1% year-over-year to 45.427 MMT.
Future Market Trends and Expectations
In contrast, the International Sugar Organization (ISO) forecasts a global sugar deficit of -2.51 MMT for the 2024/25 season, indicating a tighter market compared to a surplus of 1.31 MMT recorded for the 2023/24 season. Furthermore, Green Pool Commodity Specialists project a reversal, with a shift to a surplus of +2.7 MMT in the 2025/26 crop year from a previously estimated deficit of -3.7 MMT for 2024/25.
On the date of publication, Rich Asplund did not hold any positions, directly or indirectly, in the securities mentioned in this article. All information and data provided are for informational purposes only. For further details, please review the Barchart Disclosure Policy here.
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