Sugar prices are rising primarily due to dry weather concerns in Brazil impacting sugar production ahead of the April harvest. March contracts for both New York and London sugars have increased, driven by fund short covering and diminishing production forecasts from India. While some organizations predict a future global surplus, current sentiments are swayed by tight supplies and unfavorable weather conditions.
Sugar prices have rallied as fears over Brazil’s dry weather threaten sugar production. March New York world sugar (11) is up 1.92%, while London ICE white sugar (5) has risen by 0.31%. Alvean, a leading sugar trader, indicated that reduced rainfall in Brazil could result in underdeveloped sugarcane, possibly delaying the April harvest and impacting production levels. Additionally, fund short covering has contributed to London sugar’s futures uplift on its last trading day for the March contract.
Recent strength in the Brazilian real has aided sugar prices by encouraging fund short covering, reaching an eight-week high last Thursday. The current valuation of the real, just shy of a three-month peak, is dissuading Brazil’s producers from export selling. Moreover, last week, Centrum reported an indicative decline of 12.2% year-on-year in India’s projected sugar production from October 1 to January 31, further supporting sugar prices.
Contrarily, Green Pool Commodity Specialists anticipate a global sugar surplus of 2.7 million metric tons (MMT) in the 2025/26 crop year, highlighting a shift from the previous year’s deficit. Sugar prices have generally experienced a four-month downtrend, with significant lows in January due to improved supply expectations. The Indian government’s decision to lift export restrictions slightly inflates these projections but doesn’t alleviate the immediate concern over Brazil’s weather impact.
The International Sugar Organization (ISO) revised its deficit outlook for global sugar production down to -2.51 MMT for 2024/25. This is a change from its earlier estimate of -3.58 MMT. Furthermore, Thailand, the third-largest sugar producer, is projected to increase its production by 18% year-on-year, potentially putting further strain on global sugar prices.
Fires caused by drought last year resulted in substantial crop damage in Brazil, specifically within São Paulo’s sugarcane fields, where reports indicate losses could total around 5 MMT. Brazil’s government crop agency, Conab, modified its sugar production forecast, reducing it from 46 MMT to 44 MMT, based on low yields from ongoing drought conditions.
Simultaneously, India’s sugar output is also expected to contract significantly, with projections indicating a 15% decrease for the 2024/25 season. The ISMA outlined expectations for production to hit a five-year low of 27.27 MMT, providing additional upward pressure on sugar prices amid supply constraints. The ISO also forecasted a slight decline in global sugar output from the previous year, signaling tougher conditions ahead.
In contrast, recent projections from the USDA paint a mixed picture, forecasting a 1.5% increase in global sugar production for 2024/25 to a new peak of 186.619 MMT, coinciding with a 1.2% rise in human consumption to 179.63 MMT. The report also warned of a 6.1% decrease in global ending stocks, indicating an ongoing struggle to align supply with demand to stabilize prices.
In summary, sugar prices have surged due to concerns over Brazil’s dry weather affecting sugar output and a supportive international environment, including stronger currency and declining production estimates from India. Despite potential future surpluses predicted by analysts, short-term market dynamics favor upward pressure on prices, highlighting the volatility in the sugar market influenced significantly by global climatic conditions and trade policies.
Original Source: www.tradingview.com
