Super El Niño Could Turn Sugar Surplus Into Deficit in Brazil and Asia
El Niño is tightening global sugar supplies as excessive rain disrupts Brazil’s harvest, while weak monsoons hurt India and drought cuts Thailand’s output. Raw sugar futures have risen over 25% since July, with analysts expecting a global deficit as inventories decline and weather risks intensify.
El Niño is hitting the world’s largest sugar producers, exposing the crop’s acute vulnerability to the weather phenomenon and offering an early indication of the broader threats facing farmers and global food inflation.
At the beginning of this year, the sugar market was dealing with excess supply. El Niño is now driving a sharp reversal, and many analysts expect a deficit in the season that begins this week. Raw sugar futures have risen more than 25% since July.
For sugar, El Niño poses a particular problem: it intensifies rainfall across producing regions in the Southern Hemisphere while worsening drought north of the Equator. With production concentrated in Brazil, India and Thailand — all countries exposed to the weather phenomenon — sugar has become an important gauge of the broader damage to crops, particularly as El Niño is not expected to peak until around the end of this year.
Sugar is one of the commodities most clearly sensitive to El Niño, according to Leonardo Alencar, a food, beverage and agribusiness analyst at XP Investimentos in São Paulo. When El Niño simultaneously threatens sugarcane performance in Brazil’s Center-South and Asia’s exportable surplus, the market loses its main supply buffers, which he said typically leads to a tighter global balance, lower inventories and support for sugar prices.
The commodity has helped push global food prices to their highest level in more than three years. That adds another inflation concern for consumers and monetary policymakers considering further tightening amid the effects of the wars in the Middle East and Ukraine.
Excessive rainfall is slowing the sugarcane harvest and crushing in Brazil, the world’s largest producer. In India, farmers are contending with a weak monsoon that is reducing yields, while a scorching European summer is resulting in the worst sugar beet crop in more than a decade.
Together with drought-affected sugar-producing regions in Thailand, those areas account for more than half of global production.
“El Niño is definitely upon us,” said Eder Vieito, CEO of consultancy Green Pool Commodity Specialists. “The losses in sugar production have been significant across the board.”
Sugar is not the only crop feeling the effects of El Niño. Rice is also particularly vulnerable to rainfall shortages in Southeast Asia. West African cocoa plantations are threatened by drier weather, while coffee and palm oil are also exposed.
But as an early indicator of El Niño’s impact, sugar stands out.
The growing El Niño threat marks a sharp turnaround from just over seven months ago, when sugar fell to a five-year low. At the time, before the war in Iran and the emergence of the weather phenomenon, investors were betting that a large Brazilian crop would likely add further to the global supply surplus.
El Niño Pushes the Market Toward a Global Sugar Deficit
The shift in outlook has been particularly pronounced in Brazil. Rainfall across several major producing areas reached as much as four times normal levels over the past month, according to Donald Keeney, senior agricultural meteorologist at Vaisala Xweather.
The rain has interrupted harvesting and prevented mills from processing sugarcane, tightening supply further after the oil shock caused by the war in Iran diverted more sugar toward fuel production.
After losing several crushing days, mills may be unable to extend the season long enough to make up for the delays because more rain is expected in December. That could reduce exports by around 2 million tonnes, according to José Pessoa of Grupo José Pessoa, a family-owned company involved in sugarcane farming and milling in Brazil’s Center-South and Northeast.
In years when crushing is delayed, mills typically extend operations into December, but that will not be possible this time because of El Niño, Pessoa said.
In India, by contrast, rainfall has been below normal. The world’s second-largest producer has just recorded its weakest monsoon since 2015, reducing the sugar production forecast to around 30 million tonnes.
There are signs that inventories accumulated during the period of excess supply are beginning to decline, leaving India with little room to absorb another disappointing crop, Green Pool’s Vieito said. The erosion of those stocks is one of the factors increasing the risk of a global sugar deficit.
Thai producers are also struggling. Rainfall in northeastern Thailand, the country’s largest sugarcane-producing region, was around two-thirds of the 30-year average, according to Vaisala.
That is likely to reduce sugar production by at least 17%, to less than 10 million tonnes next season.
“The situation on my sugarcane farm is very bad, affected not only by drought but also by sugarcane diseases,” said Suntorn Nongkhunsarn, a farmer in Kalasin province.
Even sugar beet regions in the Northern Hemisphere face greater risks from El Niño. Drought in the United States has delayed the beet harvest in some areas, potentially leaving crops exposed to adverse weather as El Niño strengthens through the end of the year, according to Andraia Torsiello of Expana.
In Europe, El Niño likely intensified a series of heat waves that battered sugar beet fields, reducing output to its lowest level in at least a decade and helping prices rebound from multiyear lows. Production in France, Europe’s largest producer, is on track for its worst result since at least 1980 following the region’s hottest summer on record.
Global sugar prices have risen 18% this year, more than any other component of the United Nations food commodity price index except vegetable oils.
The scale of the potential disruption from El Niño has caught traders’ attention. Open interest in sugar futures reached record levels this year, while hedge funds amplified the price gains by building their most bullish position in years.
“There is a lot of money betting on the effects of El Niño,” said Carlos Mera, head of agricultural commodity markets at Rabobank. Speculative positioning may have pushed sugar prices above levels justified by market fundamentals, he added.
More broadly, the price rally could be limited by slowing demand growth as health-conscious consumers cut consumption, food manufacturers reformulate products and the growing use of GLP-1 weight-loss drugs raises questions about long-term demand for sweet foods, according to Stephen Geldart, head of analysis at sugar trader Czarnikow.
Still, some analysts believe prices could climb further as El Niño strengthens and supply becomes more constrained, increasing the possibility of a global sugar deficit.
Citi Research analysts led by Arkady Gevorkyan expect prices to rise about 20% over the next 12 months because of adverse weather conditions and inventories that are “substantially tighter than official data indicate.”
“Stocks have been falling, falling and falling, and you reach a point where, if there is some unexpected setback somewhere, where is the sugar going to come from?” said Judy Ganes, president of J. Ganes Consulting. “That leaves the market vulnerable.”
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Source : DatamarNews
