Sugar prices are seeing some upside momentum, with the commodity continuing its climb that it started in early April following an appreciating real. The most-active sugar futures contract finished Monday’s session at 16.02 cents per pound and the contract was trading higher during Tuesday’s session.
An appreciating Brazilian real causes sugar prices to rise, because as the Brazilian real climbs relative to the U.S. greenback, farmers in Brazil become reluctant to sell their sugar supplies. With sugar prices in U.S. dollars and Brazilian farmers expenses priced in reals, when the real appreciates relative to the greenback farmers effectively make less money on their sugar sales.
The real has been especially volatile this year, and as a result farmers have been quick to hold off on sales when it appreciates and liquidate their supplies when it depreciates, knowing that it won’t be long before the exchange between the two currencies adjusts. Last week, sugar futures jumped to their highest price in six weeks after the Brazilian real climbed to its highest value against the dollar in about five months.
The recent gains in sugar are coming from the overall expected market tightness. At the same time that Brazilian farmers are holding off on sugar exports, for now, analysts expect to see India export a smaller amount of sugar this year. This is due to the insufficient rainfall in the country, which has caused a shortage of sugar cane. A shortage has forced over 100 sugar mills in India to halt production in February, according to the Indian Sugar Mills Association. There are 513 sugar mills in the country that have been processing sugar cane in the 2015-2016 season. However, this upside could be short-lived as India is expected to see higher sugar production in the 2016-2017 marketing year beginning October 1, with sugar production estimated at 24 million metric tons.