Sugar Prices Weighed Down by Weakness in Crude Oil

March NY world sugar #11 (SBH24) on Thursday closed down -0.57 (-2.36%), and March London ICE white sugar #5 (SWH24) closed down -14.10 (-2.12%).

Sugar prices Thursday posted moderate losses, with London sugar falling to a 2-week low.  A slump in crude oil prices (CLH24) Thursday to a 1-week low weighed on sugar prices.  Lower crude prices undercut ethanol prices and could prompt the world's sugar mills to divert more cane crushing to sugar production rather than ethanol, thus boosting sugar supplies.

A sharp increase in Brazil's sugar production is bearish for prices.  Last Thursday, Unica reported that Brazil's Center-South sugar output jumped +148.6% y/y in the first half of January to 48,000 MT and that sugar output in the 2023/24 crop year through mid-January rose +25.5% y/y to 42.099 MMT.  Meanwhile, more sugarcane is being crushed for sugar than ethanol, as 49.06% of cane was crushed in the 2023/24 crop year through mid-January for sugar production compared to 45.95% last year.

Reduced sugar production in India is a bullish factor.  The Indian Sugar Mills Association (ISMA) reported Wednesday that India's 2023/24 sugar output during the Oct -Jan 31 period fell -3.2% y/y to 18.7 MMT.   For the full marketing year, ISMA forecasts India's 2023/24 sugar production at 33.05 MMT, down -9.7% from 36.6 MMT in 2022/23.  India's Weather Department said this year's monsoon rain (Jun-Sep) was 6% below average, the poorest monsoon rainfall in 5 years.  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.

Sugar prices are also seeing support from signs that India's ban on sugar exports will be maintained and global supplies will remain tight after India recently announced a 50% export tax on molasses from sugar refining.  That reduces the likelihood that India will lift its sugar export curbs in the foreseeable future.

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.

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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