Sugar Prices Jump as the El Nino Weather Pattern Disrupts Global Sugar Production

March NY world sugar #11 (SBH24) on Tuesday closed up +0.91 (+4.21%), and March London ICE white sugar #5 (SWH24) closed up +18.20 (+2.91%).

Sugar prices on Tuesday surged to 1-month highs and settled sharply higher.  Sugar prices surged on concern about the disruption to sugar production caused by the current El Nino weather pattern.

Reduced sugar production in India is a bullish factor.  India's Weather Department said this year's monsoon rain (Jun-Sep) was 6% below average, the poorest monsoon rainfall in 5 years.  The Indian Sugar Mills Association (ISMA) reported last Monday that India's 2023/24 sugar production from Oct 1-Dec 31 fell -7.6% y/y to 11.2 MMT.  For the full marketing year, ISMA forecasts India's 2023/24 sugar production at 32.5 MMT, down -11.2% from 36.6 MMT in 2022/23.  In October, India extended restrictions on sugar exports from Oct 31 until further notice in an attempt to maintain adequate domestic supplies.  India allowed mills to export only 6.1 MMT of sugar during the 2022/23 season to Sep 30 after letting them export a record 11.1 MMT in the previous season.  India is the second-largest sugar producer in the world.

The Thai Sugar Millers Corp on Nov 1 projected that Thailand's 2023/24 sugar production would fall by -36% y/y to a 17-year low of 7 MMT due to a severe drought.   So far this year, rainfall in Thailand is well below the same period last year, and the current El Nino weather system could further reduce precipitation over the next two years.  Thailand is the world's third-largest sugar producer and the second-largest sugar exporter.

Long liquidation pressures have weighed on sugar prices as last Friday's Weekly Commitment of Traders (COT) report showed money managers reduced their net-long London ICE sugar positions to a 22-month low of 9,506 for the week ending Jan 9.

Sugar prices have recently been undercut by higher Brazilian sugar production.  Last Thursday, Unica reported Brazil's Center-South sugar output jumped +35.6% y/y in the second half of December to 236,000 MT and that sugar output in the 2023/24 crop year through December rose +25.4% y/y to 42.053 MMT.  Meanwhile, Brazil exported 3.7 MMT of sugar in November, marking a new record for the month.

A negative factor for sugar was the recent news that India's food ministry directed local sugar mills to stop using sugar cane juice and syrup to produce ethanol in the 2023/24 supply year to boost sugar reserves.  Green Pool Commodity Specialists said this could add 2 MMT of sugar to India's domestic supplies.  

A bullish factor for sugar is concern that an El Nino weather pattern could disrupt global sugar production.  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 Nov 23, projected that global 2023/24 sugar production would climb +4.7% y/y to a record 183.461 MMT and that global 2023/24 human sugar consumption would increase +1.2% y/y to a record 178.431 MMT.  The USDA also forecasted that 2023/24 global sugar ending stocks would fall -13.3% y/y to a 13-year low of 33.681 MMT.  Meanwhile, ISO on Aug 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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