Jan 24 / Lívea Coda

Geopolitical shifts and Market reactions

  Back to main blog page

"The past week saw significant geopolitical events, including Trump's second term as President of the United States, which led to a correction in the dollar index after a softer stance on US trade tariffs. This triggered reactions in emerging currencies, with the Brazilian Real performing well due to foreign capital inflows and Brazil's economic agenda for 2025. Sugar prices, initially bearish, recovered due to technical factors and the strengthening BRL. While Q1 2025 trade flows appear balanced, with potential higher demand due to Ramadan and lower Brazilian availability, the market remains overall bearish for sugar in the long term due to expected oversupply from Brazil’s 25/26 crop development."

Geopolitical shifts and Market reactions

  • On January 20, Trump began his second term as President of the United States, adopting a softer stance on US trade tariffs, leading to a correction in the dollar index.

  • This movement triggered reactions in several emerging currencies, with the Brazilian Real performing well due to foreign capital inflows and the release of Brazil's economic agenda for 2025.

  • Sugar prices started the week bearish but recovered due to technical factors and the strengthening BRL. The latter closed at 5.9 by Friday.

  • Q1 2024 trade flows appear balanced, with potential demand strengthening due to Ramadan, which combined with a lower Brazilian availability until the 25/26 season is one of only supports to raw sugar prices.

  • Despite some supportive points, the market remains overall bearish for sugar, with long-term oversupply expected due to positive weather during Brazil’s 25/26 crop development.

The past week witnessed a significant geopolitical event. On Monday, January 20, Trump began his second term as President of the United States. The new administration adopted a softer stance on US trade tariffs, which defied market expectations and led to a correction in the dollar index. From over 109, the index corrected by 1.7% by Friday, closing at 107.4.


Image 1: DXY vs BRL

Source: Refinitiv,Hedgepoint

This movement triggered a reaction in several emerging currencies. The Brazilian Real, for instance, was one of the best-performing. Apart from the weakening in the DXY, the movement in the BRL reflected a good inflow of foreign capital into Brazil until January 22nd and the release of the list of priorities for the government's economic agenda in 2025 by Brazilian Minister of Finance, Fernando Haddad.

While sugar prices started the week on a bearish note, influenced by a strong dollar and news such as the Indian government allowing for 1Mt exports in 24/25, which induced prices to hit their 5-month low of 17.51 c/lb by Tuesday, they began to recover shortly after. The main reason behind the price rebound was the realization that funds were already extremely short on the commodity, coupled with the BRL gaining new strength from the DXY corrections. Analyzing the Relative Strength Index, the same day the market closed at 17.8 c/lb, the index pointed out oversold at 25.3 points, possibly triggering buying. The stronger BRL, in turn, might have capped sales, making farmers and exporters willing to wait. This might linger for a while, as inflation data released on Friday (4.5%) was higher than expected (4.36%), and the Brazilian Central Bank is expected to raise its interest rate by 100 basis points to 13.25%. The interest rate diferential favours the Brazilian currency and might support its strengthening compared to the dollar.

Image 2: Net Foreign Capital Inflows to Brazil (M BRL)

Source: B3; Hedgepoint


Image 3: Relative Strength Index

Source: Refinitiv,Hedgepoint

Therefore, sugar responded to technical and macro events that brought it back to the 19 c/lb level by the end of the week. But is it a fair level?

Looking into fundamentals, the Q1 2025 trade flows appear to be well balanced. Considering the potential demand strengthening in the next few days due to the upcoming Ramadan festivities, and the fact that Chinese import parity is estimated around 16.8 c/lb for non-producing regions, current prices seem fair. Brazil is expected to have lower availability until the beginning of the 25/26 season, which is particularly supportive for raw sugar and should contribute to the 18.5 c/lb level.

An interesting aspect also adding to this trend is Indian export parity. For raw sugar, the country is estimated to have a marginally closed situation, at 19.1 c/lb, meaning it wouldn't make sense for them to export at this level considering domestic prices. However, the scenario is different for white sugar, which can still make a profit of at least $30 USD/t. The government's 1Mt quota allowance, combined with export parity estimates suggests that the country will load white sugar – or pressure for better prices on raws. Therefore, upfront, Indian availability shouldn’t ease the raw market, but on the white side of the equation. This might be perceived as bearish for the white premium.

Image 4: Total Trade Flows ('000t tq)

Source: Green Pool, Hedgepoint

Considering a broader outlook, much has been anticipated about a possible second round of a trade war as Trump assumed office. However, we should remember that the direct effects might be limited in the sugar market. The main reason is that the US does not participate in global trade flows in a very active way. Of course, we cannot ignore the average 2.5Mt imports, but these are already done under quota licenses and tariffs. However, indirect effects might take place and shouldn't be ignored.

Going forward, understanding the impacts of possible tariffs on China is essential to grasp how they could affect the Asian country's demand for the sweetener. Today, we estimate that Chinese production will be above average, leading to a more cautious participation in the international market, as import parities have remained closed.

On the energy side, which also affects sugar, there is still a lot to unravel. It remains to be seen how the new administration will act and whether it could trigger a bullish or bearish trend. However, one thing is certain: a direct impact on the Brazilian biofuel market still seems unlikely. Without the PPI, little volatility can breach into the Brazilian domestic market, and no stock problems in the ethanol market have kept its price stable.

Image 5: Important Sugar Parities (c/lb)

Source: Refinitiv, Bloomberg,Hedgepoint


Therefore, we should keep in mind that, although we are discussing some short-term supportive points, the market remains overall bearish for the sweetener. Last week prices were affected by technical, macro, and some market fundamental resistances, but in the long-medium-term, positive weather during Brazil’s 25/26 crop development, and the expectation of another max sugar year, set the tone for oversupply, leaving little space for further gains.

In Summary

The past week saw significant geopolitical events, including Trump's second term as President of the United States, which led to a correction in the dollar index after a softer stance on US trade tariffs. This triggered reactions in emerging currencies, with the Brazilian Real performing well due to foreign capital inflows and Brazil's economic agenda for 2025. Sugar prices, initially bearish, recovered due to technical factors and the strengthening BRL. While Q1 2025 trade flows appear balanced, with potential higher demand due to Ramadan and lower Brazilian availability, the market remains overall bearish for sugar in the long term due to expected oversupply from Brazil’s 25/26 crop development.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Luiz Roque
luiz.roque@hedgepointglobal.com
www.hedgepointglobal.com

Disclaimer

This document has been prepared by Hedgepoint Schweiz AG and its affiliates (“Hedgepoint”) solely for informational and instructional purposes, without intending to create obligations or commitments to third parties. It is not intended to promote or solicit an offer for the sale or purchase of any securities, commodities interests, or investment products. Hedgepoint and its associates expressly disclaim any liability for the use of the information contained herein that directly or indirectly results in any kind of damages. Information is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. The trading of commodities interests, such as futures, options, and swaps, involves substantial risk of loss and may not be suitable for all investors. You should carefully consider wither such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgment and/or consult advisors before entering into any transactions. Hedgepoint does not provide legal, tax or accounting advice and you are responsible for seeking any such advice separately.  Hedgepoint Schweiz AG is organized, incorporated, and existing under the laws of Switzerland, is filiated to ARIF, the Association Romande des Intermédiaires Financiers, which is a FINMA-authorized Self-Regulatory Organization. Hedgepoint Commodities LLC is organized, incorporated, and existing under the laws of the USA, and is authorized and regulated by the Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA) to act as an Introducing Broker and Commodity Trading Advisor. HedgePoint Global Markets Limited is Regulated by the Dubai Financial Services Authority. The content is directed at Professional Clients and not Retail Clients. Hedgepoint Global Markets PTE. Ltd is organized, incorporated, and existing under the laws of Singapore, exempted from obtaining a financial services license as per the Second Schedule of the Securities and Futures (Licensing and Conduct of Business) Act, by the Monetary Authority of Singapore (MAS). Hedgepoint Global Markets DTVM Ltda. is authorized and regulated in Brazil by the Central Bank of Brazil (BCB) and the Brazilian Securities Commission (CVM). Hedgepoint Serviços Ltda. is organized, incorporated, and existing under the laws of Brazil. Hedgepoint Global Markets S.A. is organized, incorporated, and existing under the laws of Uruguay. In case of questions not resolved by the first instance of customer contact (client.services@Hedgepointglobal.com), please contact internal ombudsman channel (ombudsman@hedgepointglobal.com – global or ouvidoria@hedgepointglobal.com – Brazil only) or call 0800-8788408 (Brazil only).  Integrity, ethics, and transparency are values that guide our culture. To further strengthen our practices, Hedgepoint has a whistleblower channel for employees and third-parties by e-mail ethicline@hedgepointglobal.com or forms Ethic Line – Hedgepoint Global Markets. “HedgePoint” and the “HedgePoint” logo are marks for the exclusive use of HedgePoint and/or its affiliates. Use or reproduction is prohibited, unless expressly authorized by HedgePoint. Furthermore, the use of any other marks in this document has been authorized for identification purposes only. It does not, therefore, imply any rights of HedgePoint in these marks or imply endorsement, association or seal by the owners of these marks with HedgePoint or its affiliates.

To access this report, you need to be a subscriber.