Sugar prices rose sharply on Monday and NY Sugar #11 matched this month’s high of last week.
The strengthening of oil prices, together with the delay in sugar exports from India, supported Monday’s sugar growth. Oil rebounded from a 5-month low on Monday and rose by more than 2%, which increases ethanol prices and may encourage Brazilian sugar factories to set aside more cane for ethanol production rather than sugar production, which may reduce sugar supplies.
Sugar factories in India have hampered exports as they await government subsidies. The World Trade Organization (WTO) is expected to decide about the legality of Indian subsidies for its sugar exporters sometime this month after Brazil and Australia object to the WTO. The WTO ruling has been postponed since July due to the Covid-19 pandemic.
Sugar prices have risen over the past six weeks due to fears that dry Brazilian conditions could reduce sugar cane yields and reduce sugar production in Brazil. Irregular rain in Brazil’s sugar-growing areas keeps soil moisture levels below normal. Last Monday’s data from Somar Meteorologia reported that Minas Gerais, Brazil’s largest arabica coffee growing region, experienced 18.9 mm of rainfall last week, which is only 62% of the historical average. Maxar recently said that in Brazil’s sugar-growing regions, it has rained only 5-25% of the average over the past few months, leaving crops “extremely dry”. Weather conditions could also lead to a long-term excessive drought in Brazil, which is reducing sugar cane yields.
The fund’s purchases only supported the recent rise in sugar prices. The Commitment of Traders (COT) weekly report last Friday showed that the funds increased their long-term sugar positions in NY by 10,604 contracts. The week ending October 27 rose to a 4-year high, 262,579 contracts.
Sugar prices are also supported by a smaller harvest in the world’s second largest sugar exporter, Thailand, where the crops were destroyed by drought. On October 2 Thailand Sugar Mills Corp said that Thai sugar production would fall by 13% year-on-year to an 11-year low of 7.2 MMT in 2020/21 as dry weather devastated cane plantations this year.
The outlook for strong sugar production in Brazil is negative for sugar prices. Last Tuesday’s data showed that Brazilian sugar production jumped 36.5% year-on-year to 2,613 MMT in the first half of October, with the share of sugar cane used for sugar climbing from 34.61% in 2019/20 to 45.36% in 2020/21. Grupo Tereos predicts that Brazilian 2020/21 sugar exports will jump 59% to a record 30 MMT, which could have a negative impact on prices.
On September 1, the International Sugar Organization (ISO) strengthened its estimate of global sugar production for the period 2020/21 and increased its estimate of the global sugar deficit for the period 2020/21. ISO expects global sugar production 2020/21 to increase by 2.3% year on year to 173.5 MMT. ISO also said that the global sugar deficit 2020/21 will increase to -72,000 MT from -14,000 MT in 2019/20.
Looking at the historical seasonal chart, we can see a rather declining trend from today until mid-December.
Sources: Barchart.com, MRCI.com