Sugar Rallies on Strength in Gasoline Prices

July NY world sugar #11 (SBN22) on Thursday closed up by +31 (+1.63%), and Aug London white sugar #5 (SWQ22) closed up by +15.20 (+2.70%).

Sugar prices Thursday rallied moderately, with NY sugar recovering from a 3-1/2 week low.  A rally in gasoline prices Thursday (RBN22) up to near Monday's all-time high sparked short covering in sugar futures.  Higher crude and gasoline prices benefit ethanol prices and may prompt Brazil's sugar mills to divert cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.

NY sugar Thursday initially extended Wednesday's losses down to a 3-1/2 week low after Brazil President Bolsonaro announced the government will scrap all federal taxes on gasoline and ethanol until the end of the year, which is bearish for ethanol prices and may prompt Brazil's sugar mills to produce more sugar than ethanol.  

London sugar Monday rallied to a 5-1/2 nearest-futures high.  A jump in gasoline prices Monday to a new record nearest-futures (RBN22) high underpinned sugar prices.  Another positive factor for sugar is smaller output from Brazil after Unica on May 25 reported that Brazil 2022/23 Center-South sugar production through May 15 was 2.737 MMT, down -39.8% y/y.

Ramped-up sugar output in India is bearish for prices after the Indian Sugar Mills Association (ISMA) reported that India's 2021/22 sugar production during Oct 1-May 15 rose +14.4% y/y to 34.88 MMT.

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.

Meanwhile, 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.

The outlook for bigger global sugar supplies is negative for prices.  Green Pool Commodity Specialists on April 29 shifted its projection for the 2022/23 global sugar market to be in surplus by +1.41 MMT versus a January forecast of a -742,000 MT deficit.  

A bearish factor for sugar was the projection from Conab on April 27 for Brazil 2022/23 sugar production to increase by +15% y/y to 40.3 MMT as the crop recovers from the past season's adverse weather.  Also, the USDA's FAS on April 22 projected Brazil's 2022/23 sugar production would 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.