Brazilian Real Gains Fuel Short Covering in Sugar Market

March NY world sugar #11 (SBH25) Thursday closed up +0.53 (+2.92%), and March London ICE white sugar #5 (SWH25) closed up +9.30 (+1.95%).

Sugar prices Thursday rallied sharply for a second day and posted 1-week highs. Short covering in sugar futures accelerated Thursday after the Brazilian real (^USDBRL) rallied to a 6-week high. The stronger real discourages export selling from Brazil’s sugar producers.

An excessive short position by commodity funds in sugar futures could fuel any short-covering rally. Last Friday’s weekly Commitment of Traders (COT) report showed funds increased their net-short NY sugar position by 47,005 in the week ending January 14 to a 5-year high of 106,045 net short positions. Also, funds increased their net-short London sugar position by 9,627 in the week ending January 14 to a 5-year high of 121425 net short positions.

On Tuesday, sugar prices extended their 3-1/2 month-long sell-off, with NY sugar posting a 5-month nearest-futures low and London sugar posting a 3-1/3 year low. An improving global sugar supply outlook is weighing on sugar prices. On Monday, India said it would allow its sugar mills to export 1 MMT of sugar this season, easing its restrictions placed on sugar exports in 2023. India has restricted sugar exports since October 2023 to maintain adequate domestic supplies. India allowed mills to export only 6.1 MMT of sugar during the 2022/23 season to September 30 after allowing exports of a record 11.1 MMT in the previous season.

On November 21, the International Sugar Organization (ISO) reduced its 2024/25 global sugar deficit forecast to -2.51 MMT, compared to an August forecast of -3.58 MMT. ISO also raised its 2023/24 global sugar surplus estimate to 1.31 MMT from an August projection of 200,000 MT.

The outlook for higher sugar production in Thailand is bearish for sugar prices. On October 29, Thailand’s Office of the Cane and Sugar Board projected that Thailand’s 2024/25 sugar production would jump by +18% y/y to 10.35 MMT. Thailand produced 8.77 MMT of sugar in the 2023/24 season that ended in April. Thailand is the world’s third-largest sugar producer and the second-largest sugar exporter.

Sugar has support from signs of smaller sugar production in India, the world’s second-largest producer. The Indian Sugar and Bio-energy Manufacturers Association (ISM) reported on January 9 that India’s 2024/25 sugar production from October 1 to December 31 was down -15.5% y/y to 9.54 MMT. The ISM projects India’s 2024/25 sugar production to fall -13.8% y/y to a 5-year low of 27.6 MMT.

Drought and excessive heat last year caused fires in Brazil that damaged sugar crops in Brazil’s top sugar-producing state of Sao Paulo. Sugar cane industry group Orplana said that as many as 2,000 fire outbreaks affected up to 80,000 hectares of planted sugarcane in Sao Paulo. Green Pool Commodity Specialists noted that as much as 5 MMT of sugar cane may have been lost due to the fires. Conab, Brazil’s government crop forecasting agency, cut its 2024/25 Brazil sugar production estimate from November 21 to 44 MMT from a previous forecast of 46 MMT, citing lower sugarcane yields due to drought and excessive heat. Unica reported Wednesday that cumulative 2024/25 Center-South sugar output through December is down -5.4% y/y to 39.78 MMT.

As a supportive factor for sugar prices, the ISO on August 30 forecasted 2024/25 global sugar production of 179.3 MMT, down -1.1% y/y from 181.3 MMT in 2023/24.

The USDA, in its bi-annual report released November 21, projected that global 2024/25 sugar production would climb +1.5% y/y to a record 186.619 MMT and that global 2024/25 human sugar consumption would increase +1.2% y/y to a record 179.63 MMT. The USDA also forecasted that 2024/25 global sugar ending stocks would decline -6.1% y/y to 45.427 MMT.