Sugar Prices Jump on Short Covering After Recent Declines

On Monday, May NY world sugar #11 (SBK25) closed up +0.54 (+2.95), while May London ICE white sugar #5 (SWK25) closed up +5.90 (+1.12%). Sugar prices reached one-week highs as short covering and technical buying followed last week’s sell-off.

Market Dynamics: Supply and Demand Factors

Last Thursday marked a significant downturn when sugar prices fell to six-week lows due to concerns about demand and ample supplies. A major factor was the record delivery of 1.7 million metric tons (MMT) of raw sugar by traders Wilmar International Ltd and Sucres et Denrees SA, impacting the March NY futures contract which expired on February 28. These large deliveries usually indicate a bearish trend, as they suggest that sellers have limited alternative markets.

Adding to the bearish sentiment, a report from sugar trader Czarnikow on February 27 projected an increase in Brazil’s sugar production for the 2025/26 season to a record 43.6 MMT, outpacing ethanol production, which is more profitable.

Forecasts and Adjustments

Meanwhile, the International Sugar Organization (ISO) adjusted its forecast for the global sugar deficit in 2024/25, raising it to -4.88 MMT from a previous estimate of -2.51 MMT. This indicates a tightening from the 2023/24 global sugar surplus of 1.31 MMT. Additionally, the ISO cut its 2024/25 global production forecast to 175.5 MMT from 179.1 MMT previously.

In contrast, Green Pool Commodity Specialists forecast that the global sugar market will shift to a surplus of +2.7 MMT in the 2025/26 crop year after estimating a deficit of -3.7 MMT for 2024/25.

India’s Production and Export Policies

Support for sugar prices comes from reports that India’s sugar production has dropped by 14% year-on-year to 21.98 MMT for the marketing year-to-date, ending February 28, according to the India Sugar and Bio-Energy Manufacturers Association. However, the Indian government announced on January 20 that it would permit sugar mills to export 1 MMT this season, easing previous export restrictions. This is noteworthy as India has limited its sugar exports since October 2023 in an effort to ensure adequate domestic supplies. In the past season (2022/23), only 6.1 MMT of sugar was exported compared to a record 11.1 MMT in the prior season.

However, the India Sugar Mills Association (ISMA) predicts a decline in India’s sugar production for 2024/25 to a five-year low of 27.27 MMT, down 15% from the previous year.

Production Outlook for Thailand

Conversely, Thailand’s sugar production project presents a bearish outlook. The Office of the Cane and Sugar Board estimates that Thailand’s production will rise by 18% year-on-year to 10.35 MMT for 2024/25, up from 8.77 MMT in the previous season. Thailand holds its position as the third-largest sugar producer and the second-largest sugar exporter globally.

Brazil’s Crop Challenges

Brazil’s sugar production faces challenges following drought and excessive heat, which have damaged crops, particularly in São Paulo, the top sugar-producing state. Green Pool Commodity Specialists reported potential losses of up to 5 MMT of sugar cane due to fires. Accordingly, Conab, Brazil’s governmental crop forecasting agency, has reduced its 2024/25 sugar production estimate from 46 MMT to 44 MMT, primarily citing lower yields due to these adverse conditions. As of mid-February, Unica noted a 5.6% year-on-year drop in cumulative sugar output for the 2024/25 season to 39.812 MMT.

USDA Forecasts

In its bi-annual report released on November 21, the USDA predicts global sugar production for 2024/25 will increase by 1.5% year-on-year to a record 186.619 MMT, with sugar consumption expected to rise by 1.2% to reach a record 179.63 MMT. Additionally, the USDA forecasts that global sugar ending stocks will decrease by 6.1% year-on-year to 45.427 MMT.

On the date of publication, Rich Asplund had no direct or indirect 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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