Sugar Prices Pressured by Strong Dollar and Rain Forecasts in India
Oct NY world sugar #11 (SBV23) on Thursday closed down -0.28 (-1.10%), and Oct London white sugar #5 (SWV23) closed down -14.80 (-2.03%).
Sugar prices Thursday closed lower on some long liquidation pressure after NY sugar fell back from Wednesday’s 2-1/4 high and London sugar fell back from Wednesday’s 12-year nearest-futures high. Sugar prices were also pressured by the +0.4% rally in the dollar index and by forecasts for rain in India’s sugar-producing regions at the end of the week, which could boost India’s sugar yields and output and keep the government from imposing a ban on sugar exports.
Sugar has rallied since last Wednesday on speculation India will soon announce export restrictions on its sugar supplies. Last Wednesday, 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. According to India’s weather bureau, the state of Maharashtra, which accounts for 37% of India’s sugar output, has received as much as 20% less rain than normal since the start of the season. 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.
In a bullish factor, Conab August 17 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.
Unica last Thursday reported that Brazil Center-South sugar output in the first half of August rose +31.2% y/y to 3.456 MMT and that sugar output in the 2023/24 crop year through mid-August rose +21.7% y/y to 22.676 MMT. Also, 48.93% of the crushed sugarcane was used for sugar production this year, an increase from 44.65% last year.
Sugar found support when sugar trader Czarnikow stated on August 7 that Thailand 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.
A bullish factor for sugar was the estimate from the Indian Sugar Mills Association (ISMA) on August 2 that India’s 2023/24 sugar production would decline -3.4% y/y to 31.68 MMT. India is the world’s second-largest sugar producer.
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.
The USDA, in its bi-annual report released on May 25, projected that global 2023/24 sugar production would climb +6.0% y/y to a record 187.881 MMT and that global 2023/24 human sugar consumption would increase +2.3% y/y to a record 180.045 MMT. The USDA also forecasted that 2023/24 global sugar ending stocks would fall -15.2% y/y to a 13-year low of 33.455 MMT. Meanwhile, ISO on August 10 projected that 2023/24 global sugar production would fall -1.2% y/y to 174.8 MMT and that the global sugar market in 2023/24 will fall into a deficit of -2.12 MMT from a 2022/23 global sugar surplus of +852,000 MT.
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