Sugar Gains as Dry Weather Sparks Short-Covering

October NY world sugar #11 (SBV22) on Wednesday closed +0.08 (+0.45%), and Oct London white sugar #5 (SWV22) closed +5.60 (+1.07%).

Sugar prices on Wednesday posted moderate gains, with NY sugar climbing to a 2-week high.  A lack of rain in several sugar-growing regions worldwide has sparked short-covering in sugar futures.  Maxar Technologies said today that hot and dry conditions in France and Germany threaten to lower sugar beet yields in the European Union and that India's sugarcane around the Ganges River Basin received below-normal rainfall in June and July.  

Sugar on Wednesday fell back from its best levels after crude oil prices fell more than -3%.  Weakness in crude prices undercuts ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.

Sugar prices had fallen sharply over the past two weeks and produced a 1-year low on Monday.  Sugar prices have recently been undercut by concern that India might allow additional sugar exports.  A report from Bloomberg on July 20 said that India's government is considering allowing additional export sales of 1.0-1.2 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 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.

Smaller Brazil sugar production is bullish for prices after Unica reported last Wednesday that Brazil 2022/23 Center-South sugar production through mid-July was 12.661 MMT, down -17.4% y/y, with the sucrose content per ton of crushed sugar cane down -3.3% y/y at 130.45 kg per ton.  

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.
 

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