Sugar prices drop as crude oil slips, expectations rise on Brazil’s sugar output
This came in right after sugar prices underwent pressure after Conab’s projection stated that Brazil’s 2023-24 sugar output would climb by 4.7% YoY to about 38.8 MMT, as crops were seen recovering from the adverse weather from the previous season.
The Indian Sugar Mills Association reported last Wednesday that India’s sugar production has declined to 328 lakh tonnes.
Sugar prices have fallen back right after the 11-year high and have thus recorded moderate losses as the stock market falls again. Sugar is currently trading at Rs 234.70, with a fall of 1.51%. Crude oil has seen a slump of over 2%, which has sparked long liquidation pressure in sugar futures.
This came in right after sugar prices underwent pressure after Conab’s projection stated that Brazil’s 2023-24 sugar output would climb by 4.7% YoY to about 38.8 MMT, as crops were seen recovering from the adverse weather from the previous season.
Managing Director, MEIR also commented on the situation. “Sugar prices across the world, India is very well controlled due to export restrictions, but in long run farmers need to be ensured they will be paid well to continue to grow enough sugarcane for exports, domestic supply & ethanol.”
Sugar prices had sharply risen over the past 5 weeks to 11-year highs on April 26 due to tighter supply across the world. The Indian Sugar Mills Association reported last Wednesday that India’s sugar production has declined to 328 lakh tonnes. India is the world’s second largest sugar producer right after Brazil. India’s food secretary also stated that India may not allow additional export of sugar this year due to the lack of sugar production, and thus has only allowed the country to export 6MMT of sugar for the year, which is a downfall of 46% compared to the previous year when 11.2MMT sugar was otherwise exported.
The ISMA cut the Indian sugar production estimate of 2022-23 to 34MMT on Jan 31, much lesser than the October estimate of 36.5 MMT, thus lowering India’s export estimate for the year 2022-23 to 6.1 MMT from that of October’s, which was 9 MMT.
Speaking of the global production, the International Sugar Organisation (ISO) on February 24 raised its global sugar deficit estimate for 2021-22 to 2.25 MMT when compared to the November estimate of 1.67 MMT, while cutting down its 2022-23 global sugar surplus estimate to 4.15MMT from 6.19 MMT.
Despite the above, ISO still states that the global sugar production will still witness a rise of 4.8% YoY to witness a record high of 180.4 MMT.
Weather-dependent production
The reduction of sugar production in Europe plays a role in sugar prices.
The constant changing weather patterns could cause global sugar production to be undercut as there is a likelihood of an El Nino weather pattern emerging between August and October, as per the US Climate Prediction Center. If this weather pattern in fact occurs, it could lead to heavy rains in Brazil as well as cause a drought in India, thus leading to a negative impact on sugar crop production. The last time El Nino disrupted sugar crops in Asia was in 2015 and 2016, which led to inflation of sugar prices.
S&P’s Chhimwal stated that sugar prices should trend towards staying elevated in the 21 to 24 cents per pound range. “However, the El Nino risk on Asian production outlook could far offset in the medium term and take prices much higher,” he cautioned.
But, on the other hand, Conab projected a climb in Brazil’s 2022-23 sugar production by +6% to 37 MMT.
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