Brazilian sugar volumes surge; India, France, and Thailand squeezed

It was just three weeks or so ago that sugar futures were on a tear, with the New York traded contracts approaching the fabled 30 cents (£ 0.24) per pound mark.

Prices soared as heavy rains and logistical overloading brought Brazilian shipments to a halt.

SA Commodities, a shipping company, estimated that the physical loading of more than 3 million tons of sugar was suspended over a period of 20 days.

The upheaval of this dynamic was succinctly captured by Mauro Angelo, chief executive officer of Alvean, the world’s largest sugar trading company, when he remarked that,

Sugar also saw upward momentum following Thailand’s decision to establish export controls after drought conditions devastated potential output by an estimated 31% YoY.

However, this picture has changed drastically in a few short weeks.

The reversal

The sweet commodity suddenly reversed course this week, with traded contracts closing sharply lower on Thursday, and nearing 2-month lows.

In New York, sugar closed at 26.04 cents to the pound on Thursday, i.e., a fall of nearly 3.1% in a single session.

At the time of writing, sugar futures slipped further to 25.69 cents, a decline of an additional 1.3%.

Since the November top, which marked a twelve-year high, prices are down nearly 8.7%.

If the global markets were clamouring for Brazilian sugar last month, those prayers were certainly answered.

On Monday this week, UNICA, Brazil’s sugar-cane industry association announced that production had increased by 31.0% in the first half of the month of November.

This amounted to an output of 2.19 million metric tons within a fortnight.

The above-expectations report noted the presence of suitable weather conditions and an uptick in yields.

Bearish factors

In addition to increased production in November, the National Supply Company of Brazil, Conab, projected that the full-year output would stand at a record 677.6 million metric tons of sugarcane, rising 10.9% YoY; and revised sugar production estimates upwards by 15% to 46.88 million tons.

With weakness in the Brazilian real which has depreciated 0.52% over the past month, sugar supplies were rapidly absorbed by the global market.

Moving ahead, the surplus production and weak currency are likely to continue to weigh on prices.

Additionally, the International Sugar Organization projected 0.33 million metric tons in international sugar deficits, an 84.0% decline since its previous forecast, further amplifying the bearish sentiment.

Bullish momentum

While Brazil saw unexpectedly heavy volumes, Europe’s brutal cold and rainy weather has thwarted the timely harvesting of sugar beets in France, the ninth-largest sugar producer.

As a result, additional supplies have been kept off the market.

Secondly, there are concerns that this year’s El Nino weather system could hamper fresh production in both Brazil and India, the two largest sugar producers in the world.

Naradhip Anantasuk, head of the Thailand Sugar Planters Association, expects El Nino to result in a decline to 76 million metric tons of sugarcane harvested in 2024 versus 93 million metric tons in the current year, indicating an 18.3% decline in output.

India

From November 1^st to 15^th, Indian sugar mills are estimated to have seen a decline of 37% YoY, while the National Federation of Cooperative Sugar Factories (NFCSF) projected a 12% drop in full-year sugar output.

The President of the NFCSF, Jaiprakash Dandegaonkar, noted that sugarcane crushing in both Maharashtra and Karnataka was delayed due to disagreements with farmers over pricing.

Following farmer protests in the state of Punjab, earlier today, the government declared a hike in the State Advised Price (SAP) for sugarcane to INR 391 (£3.71), a bump of INR 11 per quintal.

Although this brought cheer to cultivators, it may contribute to higher downstream prices.

In addition, there are murmurs that the government may consider imposing fresh export controls.

However, a decision on new trade restrictions may not occur until the actual extent of sugar production in 2023/24 becomes clear, which may prove to be a source of some volatility in the interim.

France

French farmers were expected to have a bearish impact on global prices, given that sugar beet cultivation is forecast to reach 31.5 million metric tons, a 1.6% YoY increase.

In line with this, a 102-year-old organization, The General Confederation of Beet Planters (CGB), predicted a rise in sugar production to 3.7 million tons against 3.6 million tons in the previous season.

However, the eventual output will depend heavily on the waterlogging situation in the French fields and how well crops cope with the onset of polar winds in the middle of November.

Looking ahead

Despite overproduction in Brazil, which significantly dented global prices, supply logistics are unlikely to improve meaningfully until new port infrastructure becomes operational.

In Santos, a new terminal operated by Cofco International is unlikely to come online till 2025.

However, in the meantime, higher domestic interest rates and persistent fiscal challenges may threaten the sustainability of Brazil’s role as the market leader in this environment.

The World Bank confirmed that as of July 2023, public sector debt stood at 74.1% of GDP, while debt sustainability and political acceptance of the new tax regime remain challenging.    

Weakening construction activity and rising building costs could potentially disrupt the much-needed terminal’s schedule for delivery.

Moving ahead, the poor harvests in the second and third-largest sugar-producing countries will certainly aggravate market tightness.

Analysts at TradingEconomics.com expect sugar contracts to reach 27.56 cents per pound by the end of the quarter.

Although sugar's trajectory is now showing a clear downward bias, with so much uncertainty, market participants will continue to closely monitor developments related to Brazil’s logistical health, India’s sugar strategy, the climate in Europe, and the impacts of El Nino.