Sugar Rallies on the Outlook for Brazil to Boost Ethanol Production

May NY world sugar #11 (SBK22) on Thursday closed up by +0.25 (+1.28%), and May London white sugar #5 (SWK22) closed up by +3.10 (+0.57%).

Sugar prices Thursday posted moderate gains, with NY sugar climbing to a 4-1/2 month high and London sugar posting a 1-week high.  Sugar prices rallied Thursday on the outlook for Brazil's sugar mills to produce less sugar this month.  Covrig Analytics Thursday said Brazil's April sugar production could fall by -30% y/y to below 1.55 MMT as higher profitability of making ethanol compared to sugar prompts Brazil's sugar mills to divert as much as 70% of sugarcane to ethanol production.

Sugar prices Thursday fell back from their best levels after crude oil tumbled to a 3-week low.  Lower crude prices undercut ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing to sugar production rather than ethanol, thus boosting sugar supplies.  

The outlook for larger sugar crop sizes in India and Thailand that would offset reduced sugar production in Brazil is bearish for prices.  On Monday, the Indian Sugar Mills Association (ISMA) reported India's Oct-Mar sugar production was up +11% y/y at 30.99 MMT.  On March 11, the ISMA predicted India's 2021/22 sugar exports would jump to a record 8.5 MMT.   India is the world's second-largest sugar producer.

Also, the Thailand Office of the Cane & Sugar Board reported on March 22 that Thailand's 2021/22 sugar production from Dec 7-Mar 19 was at 9.6 MMT, and the total Thailand 2021/222 sugar harvest Dec 7-Mar 31 may reach 10 MMT, a 3-year high.  As a result, the Thailand Office of the Cane & Sugar Board expects Thailand to export 7 MMT of sugar this (2021/22) marketing year.  Thailand is the world's second-largest sugar exporter.

In a bullish factor, the International Sugar Organization (ISO) recently cut its global 2021/22 sugar deficit estimate to -1.93 MMT from a November estimate of -2.55 MMT.

Reduced sugar output in Brazil is bullish for prices after Unica reported on March 22 that 2021/22 Center-South sugar production Oct through Feb was 32.038 MMT, down -16.2% y/y.  Also, the sugar content in the sugarcane crushed fell -by 1.5% y/y to 142.96 kg/ton from 145.09 kg/ton a year earlier.  

Sugar has underlying support from the recent damage to Brazil's sugar crops from frost and drought.  Conab, on November 23, cut its Brazil 2021/22 sugar production estimate to 33.9 MMT from an Aug forecast of 36.9 MMT, down -17.9% y/y.  Conab projects Brazil's 2021/22 sugarcane crushing will fall to 525 MMT, down -13% y/y and the lowest in 10 years.