Apr 9 / Lívea Coda

Is there a way up?

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"Last week, the sugar market experienced significant volatility due to the escalation of the "Liberation Day" outcomes, which sparked fears of recession and supply chain disruptions. The devaluation of the BRL further contributed to bearish fundamentals, including the anticipated increase in availability from the new Center-South crop, leading to a drop in sugar prices. Despite a mid-week market bounce from tariff adjustments, the short-term outlook for sugar remained negative. "

Is there a way up?

  • Tariffs led to a cautious market, with fears of recession and supply chain disruptions impacting key sectors, including energy. Sugar faced significant losses, with the addition of bearish fundamentals and BRL devaluation.

  • Tariff escalation triggered a market bounce on Wednesday, but sugar showed only slight improvement, maintaining a bearish outlook.

  • Sugar closed the week with a 4% loss at 18 c/lb, amid uncertainty and caution.

  • Chinese import arbitrage opened but didn't support sugar prices, possibly due to tariff issues, economic slowdown and higher domestic availability.

  • China's potential increase in imports might support sugar prices.

  • The end of La Niña could benefit the Northern Hemisphere’s 25/26 crop development.

Last week began with the aftereffects of the first round of tariffs, leading to a cautious market environment. Fears of recession and supply chain disruptions impacted key sectors, including the energy complex. Sugar, in particular, experienced significant losses. On the macro framework, the week started acting against any sugar price recovery. The devaluation of the BRL, following a strong recovery in the USD, typically signals a selling opportunity for Brazilian producers, further contributed to the already bearish fundamentals. The sweetener currently faces the approach of the new Center-South crop, increasing short-term availability, amid a slow-paced demand. Consequently, it was not surprising to see raw sugar closing on Tuesday at 18.3 cents per pound.

Image 1: Commodities Weekly Variation Index ( Appril 7 = 100)

Source: Refinitiv, Hedgepoint


However, with the escalation of tariffs, as the United States focused on China and introduced a 90-day break for other countries that did not retaliate, as well as reducing their tariffs to 10%, the market bounced back on Wednesday. The sugar market showed some signs of improvement the following day, but this did not alter the short-term bearish outlook. Other equities, the energy complex, and the USD returned to losses on the same day, underscoring the prevailing uncertainty and the need for caution. Finally, the sweetener closed the week with an over 4% weekly loss, at 18c/lb.

Image 2: BRL x Sugar (c/lb)

Source: Refinitiv, Hedgepoint

As the market digests all the changes that occurred last week and cautiously waits for potential new turning points, it’s important to stay ahead of the sweetener fundamentals.

It's worth mentioning that after the sudden drop in sugar prices, the estimated Chinese import arbitrage to non-producing regions opened up. Surprisingly, in the short term, this wasn't enough to support the sweetener, and there were no rumors of China placing orders. One reason might be that the country is particularly entangled in recent tariff developments and could be the most affected by them. The Chinese economy was already experiencing a slowdown due to a fragile real estate sector, and the new trade war adds another layer of uncertainty.

However, looking ahead, considering that China's import pace has been rather slow, we might see some support coming from the region, potentially bringing prices back to 18.5 c/lb, especially after the country finishes its crushing season, which promises a record level. As expected, sugar is piling up to reach 11 Mt by the end of its 2024/2025 crop, having already produced 10.75 Mt by the end of March. This might also be one of the reasons that prevented China from acting last week.

Image 3: Chinese Estimated Historical Average (USD/t)

Source: Bloomberg, Refinitiv, Hedgepoint



In other Asia-related news, the final results of Thailand's crushing season have started to come in, showing that 92 Mt of cane were harvested, and 10 Mt of sugar were produced. Although this falls short of the initial expectations, it is still a healthier result compared to the previous year, when approximately 82 Mt of cane were harvested.

Regarding other fundamentals, Brazil keeps adding to the bearish side of the equation. While the market eagerly awaits the 24/25 closing Unica report, rains have returned to Center-South, alleviating some of the pessimism brough by a dry February, with improvements to indexes such as the VHI (vegetation health index). Furthermore, as we enter the new Brazilian season, sugar future contracts might find some resistance recovering, at least while there is no major bullish headlines.

Image 4: Center-South Estimated Cumulativa Rainfall (mm)

Source: Bloomberg, Hedgepoint

Additionally, NOAA has confirmed the end of the La Niña period and the beginning of a Neutral phase, which could positively impact crop development in the Northern Hemisphere. In related news, forecasts for India's monsoon quality indicate that rainfall in 2025 is expected to be 3% above the long-term average, potentially leading to higher cane availability in the 2025/2026 season.

Image 5: Official NOAA CPC ENSO Probabilities (March 2025)

 

Source: NOAA, Hedgepoint

In Summary

Last week, the sugar market experienced significant volatility due to the escalation of the "Liberation Day" outcomes, which sparked fears of recession and supply chain disruptions. The devaluation of the BRL further contributed to bearish fundamentals, including the anticipated increase in availability from the new Center-South crop, leading to a drop in sugar prices. Despite a mid-week market bounce from tariff adjustments, the short-term outlook for sugar remained negative. China's slow import pace and economic challenges, coupled with Thailand's healthier but still below-expectation production, added to the uncertainty. The week concluded with sugar prices down over 4%, closing at 18 cents per pound, amid ongoing market turbulence and cautious sentiment.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Ignacio Espinola
ignacio.espinola@hedgepointglobal.com
www.hedgepointglobal.com

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