May NY world sugar #11 (SBK23) on Thursday closed up +0.71 (+3.34%), and May London white sugar #5 (SWK23) closed up +12.30 (+1.99%).
Sugar prices Thursday rallied sharply, with NY sugar posting a 1-month high and London sugar jumping to a 10-1/2 year nearest-futures high. The outlook for tighter global sugar supplies pushed sugar prices sharply higher.
Strength in crude prices is supportive of sugar. WTI crude oil (CLK23) Thursday rose to a 2-week high, which benefits ethanol prices and may prompt the world's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.
Strength in the Brazilian real (^USDBRL) is also bullish for sugar after the real Thursday rose to a 1-3/4 month high against the dollar. The stronger real discourages export selling from Brazil's sugar producers.
Tropical Research Services on Tuesday cut its 2022/23 global sugar estimate to 1.6 MMT from a previous estimate of 4.5 MMT. Also, S&P Global Commodity Insights Monday cut its 2022/23 global sugar surplus estimate to 600,000 MT from a November estimate of 5 MMT due to weaker-than-expected global sugar production.
Another bullish factor for sugar was Wednesday's action by the Brazilian government to change how it taxes biofuels. The government established a fixed rate for state taxes on gasoline and anhydrous ethanol, which will benefit ethanol producers and may prompt Brazil's sugar mills to produce more ethanol at the expense of sugar production.
Last month, NY sugar rallied to a 6-1/4 year nearest-futures (H23) high on concerns that changing weather patterns could undercut global sugar production. The U.S. Climate Prediction Center said the La Nina weather pattern, which has affected weather patterns over the last three years, has ended and that an El Nino weather pattern has a 61% chance of developing in the second half of this year. If that El Nino pattern occurs, it could bring heavy rains to Brazil and drought to India, negatively impacting sugar crop production.
Tighter global sugar supplies are bullish for prices. The International Sugar Organization (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.
Sugar prices have underlying support from concern about smaller sugar production in India. The Indian Sugar Mills Association (ISMA) on Jan 31 cut its 2022/23 India sugar production estimate to 34 MMT from an Oct estimate of 36.5 MMT and 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. Last Friday, the ISMA reported that India's 2022/23 sugar output from Oct-Mar 15 fell -1.1% y/y to 28.2 MMT. India is the world's second-largest sugar producer.
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.
An increase in Brazil's sugar output is bearish for prices after Unica reported last Friday that Brazil's 2022/23 sugar production from Oct through mid-March rose +4.7% y/y to 33.583 MMT.
A negative factor for sugar was the report from Datagro on Mar 15 that projected that 2023/24 sugar production in Brazil's Center South would climb by +13.1% y/y to 38.3 MMT. Brazil is the world's largest sugar producer.
A bearish factor is the prospect of additional sugar exports from India. Indian Food Minister Singh said Mar 13 that India could allow another 1 MMT of sugar exports if India's 2022/23 sugar output reaches the government target of 33.6 MMT. India has already allowed 6 MMT of sugar exports.
On the negative side for sugar was the Feb 1 projection from the Thai Sugar Mills Corp that Thailand's 2022/23 sugar production would climb +14% y/y to 11.55 MMT. Likewise, Thailand's 2022/23 sugar exports are projected to increase +17% y/y to 9.05 MMT. Green Pool Commodity Specialists recently said that Thailand's 2023 sugar production reached 6.59 MMT as of Feb 8, up nearly +10% from last season, with sugar content in the cane crop at a record high. Thailand is the world's second-largest sugar exporter.
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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.
