Feb 17 / Lívea Coda

Different short and long term trends

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"The Dubai Conference set a bullish tone last week, with discussions focusing on Southeast Asia, particularly Pakistan, India, and China. The market breached the 20 c/lb resistance level, supported by the strengthening Brazilian real and funds rolling their positions. Revised figures show lower production expectations for Pakistan and India, with potential global balance deficits if India finishes its season early or imposes an export ban."

Different short and long term trends

  • The Dubai Conference set a bullish tone, focusing on Southeast Asia, particularly Pakistan, India, and China.

  • The market breached the 20 c/lb resistance level, supported by the strengthening Brazilian real and funds rolling their positions.

  • Revised figures show lower production expectations for Pakistan and India, with potential global balance deficits if India finishes its season early or imposes an export ban.

  • The delayed start of the Brazilian 25/26 crop could maintain support, but prices are expected to enter a bearish trend as Brazil recovers its supply capacity.

  • Key points to monitor include Indian export parity, Brazilian weather, and the Northern Hemisphere's crop development.

The Dubai Conference set a bullish tone over the past week, with numerous discussions focusing on the outcomes in Southeast Asia and particular concerns about Pakistan, India, and China. As a result, the market responded by breaching the 20 c/lb resistance level. Meanwhile, the Brazilian real continued its strengthening path, and funds started rolling their positions at the verge of March’s delivery, further contributing to this short-term bullish trend.

We have revised some of our numbers according to recent discussions. For instance, Pakistan is expected to have lower production, around 6.5Mt or less. We also downgraded our figures for India, particularly in terms of ethanol diversion expectations, reducing them from over 5Mt to 3.5Mt. In terms of sugar, we remain optimistic with a projection of 30Mt. However, if India finishes their season earlier, we could face a more intense global balance deficit. Instead of a marginal surplus, it could switch to around a 3Mt deficit. Nonetheless, trade flows usually set the price trend – and that looks a lot more bearish in the long term.

Image 1: Global Sugar Balance vs Stock to Use Rati (Mt/%)

Source: Green Pool, Hedgepoint

Certainly, if India imposes an export ban, in the case of production being closer to 27Mt, the short and medium-term (T1 and T2 2025) would be at risk of a deficit. This scenario would justify current market concerns and the prevailing price levels.

Image 2: Total trade flow ('000t tq)

Source: Green Pool, Hedgepoint

With a delayed start expected for the 25/26 Brazilian Center-South crop, we could see this support persisting for a while, along with an increase in FOB premiums due to the off-season lack of availability. For instance, SECEX data shows that during January the region exported 1.7Mt, a 33% drop compared to the same period in 23/24, but nearly 5% above the 10-year average. As we approach the start of the Brazilian 25/26 crop, prices are expected to enter a bearish trend as the country recovers its ability to supply the international market, making March the most bullish contract for 2025, especially because of its dependence on the Northern Hemisphere.

Therefore, there is a significant difference between the expected price trends for the short and long term, particularly for 2025 sugar contracts. While March, in its final sessions, might reflect a partial recovery in the Northern Hemisphere amid concerns about its true export capacity, May could start to reflect the new availability from Brazil – after a while. Meanwhile, June might be perceived as the most bearish 2025 contract.

When should this switch start happening? It's hard to pinpoint, but it wouldn't be surprising to see a bullish trend affecting K/N spreads after the H/K expiry. The new availability from Brazil is likely to impact the June and October contracts more intensely.

Image 3: Current Spread Structure

Source: Refinitiv, Hedgepoint

Key points to monitor for better understanding possible price movements are:

In the short term: Indian export parity. The rise in domestic prices has pushed the country's parity up from around 19c/lb to 19.8c/lb, supporting the current price level. Concerns about India's production being closer to 27Mt also raise doubts about its capacity to export the approved 1Mt quota.

In the medium term: Brazilian weather. Monitoring crop development conditions is crucial. Although conditions have been good so far, recent February dryness could limit production recovery and the ability to achieve a 51% sugar mix level.

In the long term: the Brazilian export pace and the development of the Northern Hemisphere's 25/26 crop will be crucial. If, by June, Brazilian availability flows as expected and the Northern Hemisphere continues its recovery track, the bearish trend could gain further strength.

Image 4: Key Market Parities

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 Dubai Conference set a bullish tone last week, with discussions focusing on Southeast Asia, particularly Pakistan, India, and China. The market breached the 20 c/lb resistance level, supported by the strengthening Brazilian real and funds rolling their positions. Revised figures show lower production expectations for Pakistan and India, with potential global balance deficits if India finishes its season early or imposes an export ban. The delayed start of the Brazilian 25/26 crop could maintain support, but prices are expected to enter a bearish trend as Brazil recovers its supply capacity. Key points to monitor include Indian export parity, Brazilian weather, and the Northern Hemisphere's crop development.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com
www.hedgepointglobal.com

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