March NY world sugar #11 (SBH24) on Tuesday closed -0.53 (-1.91%), and Dec London ICE white sugar #5 (SWZ23) closed -13.00 (-1.72%).
Sugar prices Tuesday retreated and posted 1-1/2 week lows. Comments from the CEO of Raizen, Brazil's top sugar and ethanol company, sparked long liquidation in sugar futures when he said his company would look to boost sugar production due to shrinking margins from producing ethanol. Investment bank BTG Pactual said the cost of making ethanol from corn in Brazil was 16% lower versus producing it from sugarcane, which could boost sugar output as more mills produce ethanol from corn instead of sugar.
Last Tuesday, sugar rallied to 12-year highs on the outlook for tighter global sugar supplies. Congestion in Brazil's ports is limiting sugar exports as a report from Green Pool Commodity Specialists said Brazil's October sugar exports fell -10% from September.
The prospects of reduced sugar exports from Thailand are supportive of sugar prices. On Oct 31, Thailand's deputy commerce minister said the country would categorize sugar as a controlled commodity to control inflation and maintain food security, which means that a regulatory panel will be required to approve Thailand's sugar exports of a ton or more. On Nov 1, the Thai Sugar Millers Corp projected that Thailand's 2023/24 sugar production would fall by -36% y/y to a 17-year low of 7 MMT due to a severe drought. So far this year, rainfall in Thailand is well below the same period last year, and the onset of the El Nino weather system could further reduce precipitation over the next two years. Thailand is the world's third-largest sugar producer and the second-largest sugar exporter.
Sugar prices also have support after the International Sugar Organization (ISO) on Oct 23 forecasted that 2023/24 global sugar production (Oct-Sep) will fall -1.2% y/y to 174.8 MMT, and there will be a 2023/24 global sugar deficit of -2.1 MMT.
Speculation that India might impose restrictions on its sugar exports is a major bullish factor for sugar prices. On Aug 23, Reuters reported that India is considering banning its sugar mills from exporting sugar in the 2023/24 season beginning in October as a lack of monsoon rain reduced the country's sugar crop. India's Weather Department said this year's monsoon rain (Jun-Sep) was -6% below average, the poorest monsoon rainfall in 5 years. India's Food Secretary Chopra said India's sugar reserves as of Oct 1 totaled 5.7 MMT, enough to meet demand for 2-1/2 months, and that it will decide whether to allow sugar exports for 2023/24 when actual estimates of total production are available. India allowed mills to export only 6.1 MMT of sugar during the 2022/23 season to Sep 30 after letting them export a record 11.1 MMT in the previous season.
On the negative side of sugar is increased sugar production in Brazil. Last Friday’s report from Unica showed that Brazil Center-South sugar output in the second half of October rose +9.4% y/y to 2.350 MMT and that sugar output in the 2023/24 crop year through October rose +22.6% y/y to 37.215 MMT. Also, 49.39% of the crushed sugarcane was used for sugar production this year, an increase from 45.83% last year.
A bullish factor for sugar is concern that an El Nino weather pattern could disrupt global sugar production. On June 8, the U.S. Climate Prediction Center said that sea surface temperatures across the equatorial Pacific Ocean had risen 0.5 degrees Celsius above normal, and wind patterns have changed to the point where El Nino criteria have been met. An El Nino weather pattern typically brings heavy rains to Brazil and drought to India, negatively impacting sugar crop production. The last time El Nino brought dryness to sugar crops in Asia was in 2015 and 2016, which caused prices to soar.
The USDA, in its bi-annual report released on May 25, projected that global 2023/24 sugar production would climb +6.0% y/y to a record 187.881 MMT and that global 2023/24 human sugar consumption would increase +2.3% y/y to a record 180.045 MMT. The USDA also forecasted that 2023/24 global sugar ending stocks would fall -15.2% y/y to a 13-year low of 33.455 MMT. Meanwhile, ISO on Aug 10 projected that 2023/24 global sugar production would fall -1.2% y/y to 174.8 MMT and that the global sugar market in 2023/24 will fall into a deficit of -2.12 MMT from a 2022/23 global sugar surplus of +852,000 MT.
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.
