Sugar Prices Surge as Brazilian Real Strengthens
Market Response to Currency Fluctuations
March NY world sugar #11 (SBH25) is up +0.43 (+2.42%), and March London ICE white sugar #5 (SWH25) is up +11.90 (+2.55%).
Impact of Short-Covering on Sugar Futures
Sugar prices have risen today after the Brazilian real (^USDBRL) reached a 6-week high, triggering short-covering in sugar futures. A stronger real typically reduces the incentive for Brazil’s sugar producers to sell their exports.
Commodity Funds and Short Positions
Commodity funds hold a significant short position in sugar futures, which could amplify any short-covering rally. The latest Commitment of Traders (COT) report indicates that funds added 47,005 net-short NY sugar positions for a total of 106,045 positions, marking a five-year high. This week, funds also increased their net-short London sugar position by 9,627, reaching 121,425 net short positions, also a five-year high.
The Recent Drop in Sugar Prices
On Tuesday, sugar prices continued a downward trend that has persisted for three and a half months. NY sugar reached a five-month low for nearest futures, while London sugar hit a three-and-a-half-year low. This decline is influenced by an improving global sugar supply outlook. India recently announced the allowance of 1 million metric tons (MMT) of sugar exports this season, easing restrictions set in place since October 2023. Previously, India limited sugar exports to only 6.1 MMT during the 2022/23 season after a record high of 11.1 MMT in the prior year.
Adjustments in Global Sugar Production Forecasts
The International Sugar Organization (ISO) adjusted its global sugar deficit forecast for 2024/25 to -2.51 MMT, an improvement from the August estimate of -3.58 MMT. At the same time, the ISO increased its 2023/24 global sugar surplus estimate to 1.31 MMT from 200,000 MT in August.
Thailand’s Sugar Production Predictions
Further contributing to sugar price pressures, Thailand’s Office of the Cane and Sugar Board predicts a substantial increase in sugar production. For the 2024/25 season, production is expected to rise by 18% year-on-year to 10.35 MMT, building on last year’s yield of 8.77 MMT. As the third-largest sugar producer globally, Thailand’s output can significantly influence prices.
Concern for Indian Production
In contrast, India’s sugar production appears to be declining. The Indian Sugar and Bio-energy Manufacturers Association (ISM) reported that production from October 1 to December 31 was down 15.5% year-on-year to 9.54 MMT. ISM forecasts India’s total sugar production for 2024/25 to fall 13.8% to a five-year low of 27.6 MMT.
Natural Disasters Impacting Brazil’s Production
In Brazil, drought and intense heat last year led to significant crop damage. Reports indicate that as many as 2,000 fire outbreaks impacted up to 80,000 hectares of sugarcane in the country’s top-producing region of Sao Paulo. Green Pool Commodity Specialists estimate that 5 MMT of sugarcane may have been lost due to these fires. Brazil’s crop forecasting agency, Conab, recently revised its 2024/25 sugar production estimate downward to 44 MMT from 46 MMT, citing poor yields due to these environmental factors. Cumulative sugar output in Brazil’s Center-South region is down 5.4% year-on-year, totaling 39.78 MMT up to December.
Future Projections for Global Sugar
Despite these challenges, the ISO has forecasted a slight decrease in global sugar production for 2024/25 to 179.3 MMT, down 1.1% from 2023/24. Conversely, the USDA’s recent bi-annual report suggests an increase in global sugar production for the same period to a record 186.619 MMT, alongside a forecasted rise in consumption to 179.63 MMT. Ending stocks for 2024/25 are expected to decline by 6.1% 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.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.