March NY world sugar #11 (SBH24) on Monday closed -0.59 (-2.16%), and Dec London white sugar #5 (SWZ23) closed -16.40 (-2.21%).
Sugar prices Monday fell sharply, weighed down by weakness in the Brazilian real and crude prices. On Monday, the real (^USDBRL) fell to a 1-week low against the dollar, encouraging export selling by Brazil's sugar producers. Also, on Monday, crude prices (CLZ23) tumbled more than -3% to a 4-week low, which weighed on ethanol prices and may prompt the world's sugar mills to divert more cane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.
Another negative factor for sugar prices was last Wednesday’s report from Unca that showed Brazil Center-South sugar output in the first half of October rose +22% y/y to 2.247 MMT and that sugar output in the 2023/24 crop year through mid-October rose +23.6% y/y to 34.862 MMT. Also, 49.44% of the crushed sugarcane was used for sugar production this year, an increase from 45.63% last year.
Last Wednesday, NY sugar posted a 12-year nearest-futures high, and London sugar posted a 6-week high on the outlook for tighter global sugar supplies. Last Monday, the International Sugar Organization (ISO) 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. Also, Alvean, the world's largest sugar trader, said on Sep 5 that it expects a 2023/24 global sugar deficit of -5.4 MMT, the sixth year of shortages, as India may curb sugar exports and Thailand's sugar output is being curbed by drought.
Sugar has support from speculation that India might announce export restrictions on its sugar supplies. 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. India's Sugar Mills Association (ISMA) on Aug 2 forecast that India's 2023/24 sugar production would decline -3.4% y/y to 31.68 MMT.
Smaller sugar output from Thailand, the world's second-biggest sugar exporter, is bullish for prices after the Thai Sugar Millers Corp on Sep 7 projected Thailand's 2023/24 sugar production would fall by -18% y/y to 9 MMT due to a severe drought. Separately, sugar trader Czarnikow projected on Aug 7 that Thailand's 2023/24 sugar production would drop -31% y/y to a 17-year low of 7.4 MMT due to dry weather. In addition, the USDA's Foreign Agricultural Service (FAS) Oct 19 projected that Thailand's 2023/24 sugar production will fall -15% y/y to 9.4 MMT. 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.
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.
