Impact of Brazilian Real Decline on Global Sugar Prices

Sugar prices have fallen sharply, reaching 1-1/2 week lows due to the Brazilian real’s influence on export dynamics and global production forecasts. The ISO has revised sugar production downwards, while India and Thailand’s fluctuating outputs further complicate the market outlook. Recent USDA projections indicate rising production alongside declining ending stocks, shaping future trends.

The May NY world sugar 11 (SBK25) declined by 0.66 cents (3.37%), while May London ICE white sugar 5 (SWK25) fell by 13.80 cents (2.49%). This decline in sugar prices reached a 1-1/2 week low, coinciding with revised forecasts indicating a global sugar deficit of -4.88 million metric tons (MMT) for 2024/25, compared to a November prediction of -2.51 MMT. Furthermore, the International Sugar Organization (ISO) reduced its production forecast for global sugar to 175.5 MMT from 179.1 MMT previously.

Following a significant rally in sugar prices starting mid-January, sugar markets experienced fluctuating sentiment as the Brazilian real strengthened against the U.S. dollar. This rise in currency value discouraged sugar producers from exporting and contributed to substantial short-covering in sugar futures. Support also stemmed from reduced sugar production in India, which saw a 12% year-on-year decline, reaching 19.7 MMT in the current marketing year through February 15.

On February 13, Alvean, the largest sugar trader globally, warned of underdeveloped sugarcane in specific areas of Brazil due to insufficient rainfall, suggesting possible delays in the upcoming April harvest and potential decreases in sugar production. Conversely, on January 20, India’s government announced it would allow its mills to export 1 MMT of sugar this season—lifting restrictions that had been in place since October 2023. India had previously exported only 6.1 MMT during the 2022/23 season and projects a decline in its 2024/25 sugar production to a five-year low of 27.27 MMT.

The anticipated increase in sugar production from Thailand could further pressure sugar prices. Thailand’s Office of the Cane and Sugar Board indicated that production could rise by 18% year-on-year to 10.35 MMT for the 2024/25 crop year, creating potential competition for the global sugar market. Conversely, adverse weather conditions, including drought and excessive heat, have hampered Brazil’s sugar crop, leading to revised production estimates from 46 MMT to 44 MMT for 2024/25 due to lower yields.

In its bi-annual report published on November 21, the USDA projected a rise in global sugar production by 1.5% year-on-year to a record 186.619 MMT and an increase in sugar consumption by 1.2% to reach a new high of 179.63 MMT in 2024/25. The USDA further forecasted a reduction in global sugar ending stocks by 6.1% year-on-year to 45.427 MMT.

On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned. The information contained herein is for informational purposes only, and readers are encouraged to consult the Barchart Disclosure Policy for further details.

In summary, the Brazilian real’s weakness has adversely impacted sugar prices, particularly as global supply forecasts suggest significant deficits ahead. India’s production declines, along with potential production increases in Thailand, create a complex landscape for the sugar market. As these factors evolve, stakeholders must monitor price movements closely amidst changing global agricultural conditions.

Original Source: www.tradingview.com