Sugar prices Thursday moved higher as concerns about smaller global sugar output sparked fund short covering in sugar futures.  The USDA's Foreign Agricultutral Service (FAS) projected 2023/24 Thailand sugar production at 9.4 MMT, down -15% y/y.  

 

 

Sugar had been under pressure over the past week and posted a 5-week low Wednesday on signs of ramped-up sugar production in Brazil.  Last Tuesday, Unica reported that Brazil Center-South sugar output in the first half of September rose +8.5% y/y to 3.116 MMT and that sugar output in the 2023/24 crop year through mid-September rose +18.7% y/y to 29.258 MMT.  Also, 49.37% of the crushed sugarcane was used for sugar production this year, an increase from 45.47% last year.

 

Weakness in the Brazilian real (^USDBRL) is bearish for sugar prices after the real on Thursday fell to a 6-1/4 month low against the dollar.  The weaker real encourages export selling from Brazil's sugar producers.  

 

A slump in crude prices is negative for sugar after crude (CLX23) on Thursday fell to a 5-week low.  Weakness in crude undercuts ethanol prices and may prompt sugar mills worldwide to divert more sugar cane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.

 

Over the past month, sugar prices have risen sharply, with NY sugar on September 19 posting a 12-year nearest-futures high and London sugar on September 14 posting a 12-year high, on concern about smaller global sugar production.  On September 5, Alvean, the world's largest sugar trader, expects a 2023/24 global sugar deficit of -5.4 MMT, the sixth year of shortages, as India may curb sugar exports and Thailand farmers plant more profitable cassava instead of sugarcane.

 

Sugar has support from speculation that India might soon announce export restrictions on its sugar supplies.  On August 23, Reuters reported that India is considering banning its sugar mills from exporting sugar in the 2023/24 season beginning in October as a lack of monsoon rain reduced the country's sugar crop.  India's Weather Department said this year's monsoon rain (Jun-Sep) was -6% below average, the poorest monsoon rainfall in 5 years.  India's food ministry said it will make a final decision about sugar exports for 2023/24 when actual estimates of total production are available.   India allowed mills to export only 6.1 MMT of sugar during the current 2022/23 season to September 30 after letting them export a record 11.1 MMT last season.  India's Sugar Mills Association (ISMA) on August 2 forecast that India's 2023/24 sugar production would decline -3.4% y/y to 31.68 MMT.

 

 

Smaller sugar output from Thailand, the world's second-biggest sugar exporter, is bullish for prices after the Thai Sugar Millers Corp on September 7 projected Thailand's 2023/24 sugar production would fall by -18% y/y to 9 MMT due to a severe drought.  Separately, sugar trader Czarnikow projected on August 7 that Thailand's 2023/24 sugar production would drop -31% y/y to a 17-year low of 7.4 MMT due to dry weather.  So far this year, rainfall in Thailand is well below the same period last year, and the onset of the El Nino weather system could lower precipitation even further over the next two years.  Thailand is the world's third-largest sugar producer.

 

Another negative factor for sugar is reduced demand from China after China's August sugar imports tumbled -46.4% y/y to 370,000 MT.

 

A bearish factor for sugar is the strong sugar output in Brazil.  On August 17, Conab raised its Brazil 2023/24 sugar production estimate to 40.9 MMT from an April forecast of 38.8 MMT as favorable weather conditions boosted sugarcane yields.  

 

A bullish factor for sugar is concern that an El Nino weather pattern could disrupt global sugar production.  On June 8, the U.S. Climate Prediction Center said that sea surface temperatures across the equatorial Pacific Ocean had risen 0.5 degrees Celsius above normal, and wind patterns have changed to the point where El Nino criteria have been met.  An El Nino weather pattern typically brings heavy rains to Brazil and drought to India, negatively impacting sugar crop production.  The last time El Nino brought dryness to sugar crops in Asia was in 2015 and 2016, which caused prices to soar.