London Sugar Soars Ahead of Oct Expiration

October NY world sugar #11 (SBV22) on Thursday closed down -0.09 (-0.49%), and Oct London white sugar #5 (SWV22) closed up +18.00 (+2.98%).

Sugar prices Thursday settled mixed, with London sugar soaring to a 10-year nearest-futures high.  Heavy fund short-covering in London sugar futures ahead of Thursday's expiration of the October contract sparked a sharp rally in London sugar prices.  

NY sugar was under pressure Thursday from weakness in crude oil and the Brazilian real.  Crude (CLV22) fell more than -3% Thursday, which is negative for ethanol prices and sugar.  In addition, the Brazilian real (^USDBRL) Thursday fell to a 1-week low against the dollar, encouraging export selling by Brazil's sugar producers.  

On Tuesday, NY sugar posted a 4-week high on signs of smaller global supplies after Unica reported that Brazil's Center-South sugar crop output in the 2022/23 marketing year through Aug was down -10.5% y/y to 21.77 MMT.

Sugar prices saw support 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.

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 sugar prices.  Czarnikow Group predicts sugar output in the European Union (EU) and the UK should total 16.4 MMT this year, about 1 MMT lower than last year, which means the EU may have to import more sugar than usual.

Another supportive factor for sugar was the action by Conab on August 19 to 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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