Global sugar prices likely to come under pressure on hopes of higher output

Global sugar prices will likely come under pressure for the remainder of the current season to September and also the next season on hopes of higher production.

Currently, raw sugar prices have dropped to an 18-month low of 18.81 cents a pound (₹34,875/tonne) for futures expiring in July on the InterContinental Exchange, New York.  Prices have been hovering around this level since the middle of last month. 

“…while Brazil’s domestic production for the 2024-25 season is projected to experience a marginal decline, the output is still poised to be substantial at 41 million tonnes (mt), well ahead of historical averages,” said research agency BMI, a unit of Fitch Solutions.

In contrast, Thailand’s production is on track for a robust recovery, with a 16.4 per cent year-on-year increase to 10.2 mt projected, following a season affected by El Niño. India’s production is poised for a slight increase in 2024-25,  though it will remain below historical trends, it said.

Production outlook raised

According to Praful Vithalani, Chairman, All India Sugar Trade Association (AISTA), global sugar prices have been trending down as fund houses have taken short positions, while continuous drop in prices has kept buyers —importing countries — away. “They are waiting for still lower price levels,” he said.

The World Bank, in its Commodity Outlook, said sugar prices plummeted by 17 per cent in December 2023 (month-on-month) and remained at that level in the first quarter of 2024, reflecting increased production in Brazil and dry weather that allowed cane processing to continue and sugar exports to leave ports faster than expected. 

BMI said for the 2023-24 season, it has revised its global production forecast upwards to 182.9 mt from an earlier estimate of 182 mt, reflecting a year-on-year increase of 3.7 per cent. “We are projecting a further climb in the 2024-25 season, with global production expected to grow by 1.5 per cent to 185.7 mt,” the research agency said.

Vithalani said production has exceeded consumption from 2.7 mt in 2022-23 to 4.2 mt in 2023-24 (in raw value). “A similar outlook is expected next year,” the AISTA Chairman said. 

Huge rise in Brazil

ING Think, the economic and financial analysis wing of Dutch multinational financial services firm ING, said the latest fortnightly report from UNICA (Brazil Sugar Association) showed that sugarcane crushing in Centre-South Brazil stood at 34.6 mt over the second half of April, compared with 21.4 mt during the same period a year ago. 

Cumulative sugarcane crush for the season as of April-end rose 43.4 per cent year-on-year (YoY) to 50.6 mt. “Sugar production rose by 84.3 per cent YoY to 1.8 mt over the second half of April with around 48.4 per cent of cane allocated to sugar production over the fortnight, higher than the 43.5 per cent sugar mix in the same period last year. Cumulative sugar output so far this season stands at 2.6mt, up 65.9 per cent YoY,” it said.

Vithalani said one reason for the higher global production despite lower output in Thailand and India is the huge increase in Brazil’s sugar production. “That is because low ethanol prices in Brazil led to higher sugar production as mills find the latter more profitable,” he said. 

Brazil’s sugar production has increased from 38 mt in 2022-23 to 45.5 mt in 2023-24. It is expected to stay high at 44 million tonnes next year, the AISTA president said.

Price forecast

The World Bank said the expected weakening of El Niño in the first half of 2024 should alleviate sugar supply constraints in India and Thailand, the second and third largest sugar exporters globally, resulting in price declines of 3 per cent and 8 per cent (YoY) in 2024 and 2025, respectively. 

BMI said it was adjusting its sugar price forecast in response to the substantial downward pressure on prices being witnessed in the second quarter of 2024 for the 2024 average front-month ICE-listed sugar price. It has lowered it from 23.5 cents to 21 cents. 

It said global consumption is anticipated to climb to 178.8 mt in the 2023-24 season. It is expected to see a further increase to 179.7 mt in the 2024-25 season. “This represents a modest year-on-year growth of 0.5 per cent,” said BMI.