Sugar Gains on the Outlook for Smaller Global Supplies

October NY world sugar #11 (SBV22) on Monday closed up +0.13 (+0.71%), and Oct London white sugar #5 (SWV22) closed up +25.00 (+4.25%).

Sugar prices Monday extended last Friday's gains, with NY sugar posting a 3-1/2 week high and London sugar soaring to a 6-year nearest-futures high.  Sugar prices had carry-over support from last Friday when the Thailand government announced that it would provide state subsidies for biofuels for two years.  The subsidies may reduce the amount of sugar Thailand has for export as the subsidies encourage Thailand's sugar producers to ramp up ethanol production rather than export the sugar.

Strength in the Brazilian real supported sugar prices after the real (^USDBRL) Monday rose to a 1-1/2 week high against the dollar.  The stronger real discourages export selling from Brazil's sugar producers.

This summer's hot and dry weather in Europe, the world's third-largest sugar producer, may lead to smaller sugar beet yields and lower sugar production, which is bullish for prices.  

Smaller sugar supplies from Brazil are supportive of prices.  On August 24 Unica reported that Brazil's Center-South sugar crop output in the 2022/23 marketing year through mid-Aug was down -12.8% y/y to 18.625 MMT.  Also, Conab, on August 19, cut its estimate for the 2022/23 Brazil sugar crop to 33.9 MMT from an April forecast of 40.3 MMT, citing lower plantings and falling sugar cane yields.

In a bearish factor, India's government, on August 5, confirmed that it would allow a further 1.2 MMT of sugar exports for the year ending September 30 to help India's sugar mills from defaulting on export contracts.  That would be on top of the current quota of 10 MMT for a total of 11.2 MMT of sugar exports.

The outlook for larger sugar crop sizes in India and Thailand is bearish for sugar prices.  On April 15, the ISMA raised India's 2021/22 sugar production estimate to 35 MMT from 33.3 MMT, up +12.2% y/y, and said sugar exports would jump to a record 9 MMT.  India is the world's second-largest sugar producer.  The Indian Sugar Mills Association (ISMA) recently reported that India's 2021/22 sugar production from Oct 1-May 15 rose +14.4% y/y to 34.88 MMT.  Meanwhile, Thailand's Office of the Cane & Sugar Board estimated that Thailand would export 7 MMT of sugar this (2021/22) marketing year.  Thailand is the world's second-largest sugar exporter.

Weakness in Brazilian ethanol prices is negative for sugar prices.  Brazil's ethanol hydrous fuel prices fell to a 1-1/2 year low last Friday at 2.2275 reals/liter, which will encourage Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.  

A bearish factor for sugar was the projection from the USDA's FAS on April 22 for Brazil's 2022/23 sugar production to climb +2.9% y/y to 36.37 MMT and that 2022/23 Brazil sugar exports would increase by +3.7% y/y to 26.6 MMT.
 

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