On 12th April 2023, the May NY world sugar #11 (SBK23) closed down by -0.32 (-1.31%), and the May London white sugar #5 (SWK23) closed down by -8.60 (-1.22%). India is the world’s largest sugar producer and exporter following Brazil.
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Sugar prices on the 12th declined from its 11-year nearest future highs closing slightly lower.
After Unica reported that Brazil’s 2022/23 sugar production from October through March rose +5.2% y/y to 33.728 MMT, it caused long liquidation pressures in sugar futures.
The past two weeks have seen fund purchases of sugar futures reach an 11-year high due to indications of even tighter global supplies. Due to lower-than-anticipated sugar production, India’s food secretary stated that the country might not permit additional sugar exports this year. India only permitted 6 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 last Wednesday that the country’s Oct-Mar sugar production fell -3.3% y/y to 29.96 MMT.
London sugar futures are rising as a result of a shortage of deliverable sugar before the May London white sugar contract expires this Friday. Open interest in the London Sugar Futures market indicates a massive delivery of more than 500,000 MT.
Factors Affecting Sugar Prices
- Sugar prices are also supported by the strengthening of the Brazilian real (USDBRL), which on Wednesday rose to a 10-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 pricing.
- Tropical Research Services on March 28th reduced its global sugar estimate for 2022–2023 from 4.5 MMT to 1.6 MMT. Additionally, last Monday, 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.
- Concerns that shifting weather patterns might reduce global sugar production also lend support to the rise in sugar pricing. 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 by +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 36.5 MMT to 34 MMT and for the country’s sugar exports in 2022–2023 from 9 MMT to 6.1 MMT. Additionally, the ISMA predicted that by 2022 or 2023, sugar mills in India will divert 4.5 to 5.0 MMT of sugar to ethanol production.
- The decision by the Thai Sugar Mills Corp to reduce its estimate of Thailand’s sugar production in 2022–2023 from 11.5 MMT to 11.0 MMT on March 29 was bullish for sugar prices.
- Rising sugar prices are supported by Europe’s decreased sugar production. On December 8, the European Association of Sugar Manufacturers predicted that EU sugar production would decrease -7% year over year to 15.5 MMT in 2022–23.
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