Sugar Prices Climb Amid Production Concerns and Global Trends

Sugar Output Drops in Brazil, Prompting Increased Market Activity

March NY world sugar #11 (SBH25) today is up +0.20 (+0.90%), and December London ICE white sugar #5 (SWZ24) is up +6.40 (+1.13%).

Today’s rise in sugar prices is linked to reduced production in Brazil. According to Unica, sugar output in Brazil’s Center-South region during the latter half of September dropped by -16.2% year-over-year (y/y) to 2.829 million metric tons (MMT). Despite this, sugar production in the Center-South region has increased by +1.5% for the 2024/25 season, totaling 33.154 MMT.

Weather Changes Impact Market Movements

Earlier this week, sugar prices fell to three-week lows due to anticipated rains in Brazil, easing concerns over drought. Maxar Technologies, a weather forecaster, indicated that rain showers are expected to persist across Brazil’s Center-South region, the country’s primary area for sugar production.

A significant net long position held by funds in London white sugar could amplify liquidation pressures if prices decline. Last Friday’s Commitment of Traders (COT) data revealed that funds bolstered their net-long positions in London white sugar by 4,460 to reach a four-year high of 40,192 net-long positions in the week ending October 1.

On September 26, NY sugar experienced a notable rise, hitting a 7-1/4 month high due to adverse drought conditions affecting Brazil’s sugar outputs. Rabobank adjusted its 2024/25 Brazil sugar production forecast downward on September 20, estimating production at 39.3 MMT, down from 40.3 MMT, attributing lower yields to severe dryness.

Weather-Related Damage to Crops

Recent drought and intense heat have caused wildfires in Brazil, damaging crops, particularly in the major sugar-producing state of Sao Paulo. The sugar cane industry group Orplana reported approximately 2,000 fire outbreaks impacting 80,000 hectares of sugarcane. Green Pool Commodity Specialists estimated that as much as 5 MMT of sugar cane may have been lost due to these fires.

Global Trends that Could Affect Sugar Prices

In contrast, there is growing optimism about India’s monsoon rains leading to a substantial increase in sugar production, which is bearish for sugar prices. The Indian Meteorological Department noted a total of 934.8 mm of rain during the current monsoon season as of September 30, marking the highest accumulation in four years and exceeding the long-term average by 7.6%.

On the supportive side for sugar prices, Brazil’s government crop agency, Conab, on August 22 reduced its overall sugar production forecast for the Center-South region to 42 MMT from 42.7 MMT, citing lower sugarcane yields due to drought and extreme heat.

Furthermore, India’s Food Ministry has eased restrictions on ethanol production from sugar by mills for the 2024/25 period, potentially extending India’s export curbs. Last December, India instructed sugar mills to halt using sugarcane for ethanol production to bolster sugar reserves. Since October 2023, India has limited sugar exports to maintain domestic supply levels, permitting only 6.1 MMT of sugar to be exported in the 2022/23 season, down from a record 11.1 MMT the previous season. Recently, the Indian Sugar and Bio-energy Manufacturers Association (ISM) projected that India might have 2 MMT available for export in the next season and has urged the government to reconsider current export restrictions.

The ISM also reported a -1.6% y/y decline in India’s sugar production from October to April, totaling 31.4 MMT, and forecasted a -2% y/y drop in 2024/25 production to 33.3 MMT.

Global Production Trends Overview

Meanwhile, production forecasts from Thailand indicate a potential increase, which is bearish for sugar prices. Last Tuesday, Thailand’s Office of the Cane and Sugar Board projected a +18% y/y rise in sugar production for 2024/25 to 10.35 MMT, compared to 8.77 MMT produced in the 2023/24 season. Thailand stands as the world’s third-largest sugar producer and second-largest exporter.

On a global scale, the International Sugar Organization (ISO) forecasted a 2024/25 global sugar deficit of -3.58 MMT, significantly larger than the estimated -200,000 metric tons deficit for 2023/24. The ISO also predicts global sugar production will drop -1.1% y/y to 179.3 MMT.

USDA Projections and Market Context

The USDA’s bi-annual report released on May 23 projected a climb in global sugar production to a record 186.024 MMT for 2024/25, representing a +1.4% increase y/y, while human sugar consumption is anticipated to reach a record 178.788 MMT, up +0.8% y/y. The USDA also expects ending stocks for 2024/25 to decline -4.7% y/y to a 13-year low of 38.339 MMT.

More Sugar News from Barchart

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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.