Global Sugar Prices Surge To 11 Year Highs As Global Supplies Shrink

April 11th’s closing prices for May London white sugar #5 (SWK23) and May NY world sugar #11 (SBK23) both increased by 0.81 (+3.44%) and 29.30 (+4.35%), respectively. India, after Brazil, is the second-largest producer of sugar in the world. 

Rise In Sugar Prices 

On 11th April, sugar prices rose sharply to 11 year nearest future highs. Following comments from India’s Food Secretary that India may not permit additional sugar exports this year due to lower-than-expected sugar production, fund buying is driving sugar futures higher on signs of even tighter global supplies. India only permitted 6 Million Metric Tonnes (MMT) of sugar exports in 2022–2023 compared to 11.2 MMT in 2021/22, a -46% year-over-year decrease. Additionally, the Indian Sugar Mills Association (ISMA) announced on 5th of April that the country’s Oct-Mar sugar production fell -3.3% year-over-year to 29.96 MMT. 

Another factor driving up the price of London sugar futures is a shortage of deliverable sugar before the May London white sugar contract expires on Friday. The open interest in London futures points to a significant delivery above 880,000 MT. 

Tropical Research Services decreased its 2022–2023 global sugar estimate from 4.5 MMT to 1.6 MMT on March 28. Additionally, due to lower-than-expected global sugar production, S&P Global Commodity Insights reduced its estimate of the 2022–23 global sugar surplus from a November estimate of 5 MMT to 600,000 MT last Monday. 

Factors Affecting Sugar Pricing 

  • Rise in sugar prices are aided by the strengthening of the Brazilian real (USDBRL), which on Tuesday hit a two and a half month high against the dollar. Brazilian sugar producers’ export sales are discouraged by a stronger real. The report from Datagro on March 15

that predicted that sugar production in Brazil’s Center South would increase by +13.1% y/y to 38.3 MMT was a negative factor for sugar. 

  • Concerns that shifting weather patterns might reduce global sugar production also lend support to the high sugar prices. The La Nina weather pattern, which had an impact on weather patterns over the previous three years, has ended, according to the U.S. Climate Prediction Center, and an El Nino weather pattern has a 61% chance of forming in the second half of this year. If that El Nino pattern materializes, it might cause drought in India and heavy rains in Brazil, which would be detrimental to the growth of the sugarcane crop. In 2015 and 2016, El Nino caused dry conditions to affect Asia’s sugar crops, which led to a spike in prices. 
  • Sugar prices will rise as supplies become more limited globally. The International Sugar Organization (ISO) cut its 2022–2023 global sugar surplus estimate to 4.15 MMT from 6.19 MMT on February 24 and increased its 2021–2022 global sugar deficit estimate to -2.25 MMT from a November estimate of -1.67 MMT. However, the ISO continues to forecast that global sugar production will increase +4.8% year over year to a record high of 180.4 MMT in 2022–23. 
  • Concern over India’s declining sugar production is a key factor supporting rising sugar prices. On January 31, the ISMA reduced its estimates for India’s sugar production in 2022–2023 from October’s estimate of 36.5 MMT to 34 MMT and for the country’s sugar exports in 2022–2023 from October’s estimate of 9 MMT to 6.1 MMT. Additionally, according to the ISMA, India’s sugar mills will divert 4.5–5.0 MMT of sugar to ethanol production in 2022–2023. 
  • The decision by the Thai Sugar Mills Corp to reduce its estimate of Thailand’s sugar production in 2022–2023 from February’s 11.5 MMT to 11.0 MMT on March 29 was bullish for sugar prices. 
  • Sugar prices are supported by Europe’s decreased sugar production.

On 8th December 22, the European Association of Sugar Manufacturers forecasted that EU 2022/23 sugar output would fall by 7% year-over-year to 15.5MMT. 

  • Unica reported last Friday that Brazil’s 2022/23 sugar production from October through mid-March rose +4.7% y/y to 33.583 MMT. This increase in the country’s sugar output is negative for prices. 

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