Apr 7 / Lívea Coda

US tariffs impacts on sugar are mostly indirect

  Back to main blog page

"Last week was marked by the anticipation and aftermath of Trump's "Liberation Day." Market expectations regarding the US tariff announcement disrupted the support sugar prices received from India’s poor March. The new tariffs had minimal impact on sugar trade flow, with Canada and Mexico exempt and TRQ quotas expected to start paying new duties – although the latter remains rather uncertain as the program was not explicitly mentioned. Concerns about a potential US recession and higher inflation are pressuring the dollar, boosting other currencies' purchasing power. "

US tariffs impacts on sugar are indirect

  • Last week was dominated by the anticipation and aftermath of Trump's "Liberation Day"

  • Market expectations regarding the US tariff announcement disrupted the support sugar found on poor March crushing figures from India, leading to higher volatility, and causing sugar prices to drop nearly 2.5% by Thursday.

  • By the end of Friday, sugar closed at 18.84c/lb, with a strong support level coming from Chinese import arbitrage.

  • The new tariffs had minimal impact on sugar trade flow, with Canada and Mexico exempt and TRQ quotas expected to start paying new duties, boosting Mexico's advantage.

  • Concerns about a potential US recession and higher inflation are pressuring the dollar, boosting other currencies' purchasing power, while the new Brazilian crop is approaching, promising to ease short-term availability pressure and limit price increases.

Last week was all about the anticipation and aftermath of Trump's "Liberation Day“. Traders were cautious, and we saw a modest recovery in sugar prices on Tuesday after India's sluggish March crushing results. However, this support was disrupted by market expectations regarding the US tariff announcement, leading to greater volatility in the markets that were still open on Wednesday, such as the energy and currency markets, and impacting sugar prices on Thursday.

By the end of Thursday, crude oil had dropped over 7%, accompanied by a downward trend in the US dollar and global equities. The BRL and other currencies appreciated compared to the dollar index, while sugar took a significant hit, dropping nearly 2.5% during the session. By the end of Friday, sugar closed at 18.84c/lb. It's important to note that sugar has a strong support level due to Chinese import arbitrage. As prices approached 18.7 c/lb, there might have been some import arbitrage opening in non-producing regions, aiding sugar not to fall further.

Image 1: Commodities Weekly Variation Index ( Mar 31 = 100)

Source: Refinitiv, Hedgepoint

Furthermore, how did the tarrifs impact sugar? Botton line: very little, at least to our understanding considering the released information so far.

First, Canada and Mexico were exempt from the new tax regime, and USMCA goods are excluded. This means Mexico's sugar should continue to enter the market without duty, keeping its position as US’ key partner in the sugar market.

For Tariff-Rate Quota (TRQ), which used to pay zero duty, they were not mentioned in any exemption, so we expect them to start paying the new duties, further boosting Mexico's advantage. As an example, Brazilian sugar imported through the TRQ would have to pay the 10% tariff imposed on the country. Outside quota that already paid taxes were not mentioned and will possibly remain the same – something worth monitoring. Therefore, even if a 25% tariff is implemented on Mexico (from another tariff proposition) and includes sugar, it should still hold an advantage compared to other origins, so the established import flow wouldn’t change much.

Image 2: Usually Mexico Acconts for Most of US imports

Source: U.S. Department of Commerce

On the macro front, concerns about a potential US recession and higher inflation are putting pressure on the dollar, boosting the purchasing power of other currencies. The ongoing discussions about retaliation from China (already decided at 34%) and the EU could further exacerbate these concerns, pushing the dollar even lower. This scenario does offer a glimmer of bullish hope: while producers might be less inclined to sell at lower profits, buyers could be more eager to purchase, taking advantage of their stronger position. However, the extent of a possible price recovery still depends on market availability and actual demand.

Image 3: Currencies Weekly Variation Index ( Mar 31 = 100)

Source: Refinitiv, Hedgepoint



The new Brazilian crop is just around the corner, which means the short-term availability pressure might be seen as temporary. So far, the fact that more mills have started crushing sooner than expected seems promising, limiting any price increases, especially with demand patiently waiting to place orders. There are still some points worth monitoring, such as the Vegetation Health Index, but whether the crop is healthy or just okay, we are already entering the time of year when Brazil tends to put a cap on price increases.

Image 4: US: New Tarrifs – Sugar Market

Source: Refinitiv, Hedgepoint

In Summary

Last week was marked by the anticipation and aftermath of Trump's "Liberation Day." Market expectations regarding the US tariff announcement disrupted the support sugar prices received from India’s poor March. By Thursday’s end, crude oil had dropped over 7%, the US dollar and global equities were also down, and sugar prices fell nearly 2.5%, closing at 18.84c/lb on Friday. The new tariffs had minimal impact on sugar trade flow, with Canada and Mexico exempt and TRQ quotas expected to start paying new duties – although the latter remains rather uncertain as the program was not explicitly mentioned. Concerns about a potential US recession and higher inflation are pressuring the dollar, boosting other currencies' purchasing power. The new Brazilian crop is approaching, promising to ease short-term availability pressure and limit price increases.

Weekly Report — Sugar

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