July NY world sugar #11 (SBN23) on Friday closed up +0.80 (+3.13%), and Aug London white sugar #5 (SWQ23) closed up +17.90 (+2.57%).
Sugar prices Friday rallied sharply. A more than +4% jump in crude prices (CLM23) Friday helped push sugar higher. Higher crude prices benefit ethanol and may prompt the world's sugar mills to divert more cane crushing toward ethanol production than sugar, thus curbing sugar supplies.
Strength in the Brazilian real also supports sugar after the real (^USDBRL) Friday rallied to a 2-1/2 week high against the dollar. The stronger real discourages export selling from Brazil's sugar producers.
Sugar prices had been under pressure earlier this week on farmer hedge selling ahead of the upcoming Brazil sugar harvest. Conab on Apr 26 forecasted that Brazil's 2023/24 sugar output would climb +4.7% y/y to 38.8 MMT, the second most ever, as crops recover from the previous season's adverse weather.
The outlook for a sugar surplus this year is negative for prices. The International Sugar Organization (ISO) said Thursday that it expects the global 2023/24 sugar surplus to fall to +2.1 MMT from a +4.15 MMT surplus in 2022/23.
Last Thursday, sugar extended its six-week rally to 11-year highs. Sugar prices rallied on speculation that lower-than-expected sugar production in India will prompt the government to curb sugar exports. Last Wednesday, the Indian Sugar Mills Association (ISMA) cut its 2022/23 India sugar production estimate to 32.8 MMT from a Jan estimate of 34 MMT. India's Food Secretary said India might not allow additional sugar exports this year due to lower-than-expected sugar production. India has allowed only 6 MMT of sugar exports in 2022/23 after permitting 11.2 MMT in 2021/22, down -46% y/y. The ISMA on Jan 31 cut its India 2022/23 sugar export estimate to 6.1 MMT from an Oct forecast of 9 MMT. Also, the ISMA said that it sees India's sugar mills diverting 4.5-5.0 MMT of sugar to ethanol production in 2022/23. India is the world's second-largest sugar producer.
Sugar prices have rallied sharply over the past six weeks on tighter global sugar supplies. The ISO on Feb 24 raised its 2021/22 global sugar deficit estimate to -2.25 MMT from a November estimate of -1.67 MMT and cut its 2022/23 global sugar surplus estimate to 4.15 MMT from 6.19 MMT. However, the ISO still projects that global 2022/23 sugar production will climb +4.8% y/y to a record high of 180.4 MMT. Tropical Research Services on Mar 28 cut its 2022/23 global sugar surplus estimate to 1.6 MMT from a previous estimate of 4.5 MMT.
Reduced sugar production in Europe is a supportive factor for sugar prices. The European Association of Sugar Manufacturers on Dec 8 forecasted that EU 2022/23 sugar output would fall -7% y/y to 15.5 MMT.
Sugar has support from concerns that changing weather patterns could undercut global sugar production. The U.S. Climate Prediction Center on Apr 20 raised the likelihood of an El Nino weather pattern emerging between August and October to 74% from 61% a month ago. If that El Nino pattern occurs, it could bring 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.
On the bearish side, Conab on Apr 20 projected Brazil's 2022/23 sugar production would climb +6% y/y to 37 MMT. On Apr 17, S&P Global Commodity Insights projected that the 2023/24 global sugar surplus would climb to +4.5 MMT from a 2022/23 global sugar surplus of 600,000 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.
