May 9 / Lívea Coda

Challenges and opportunities for sugar prices

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"Prices are currently influenced by China’s import arbitrage and ethanol parity. While demand has been slower, especially from China, other countries like Bangladesh, Malaysia, and Algeria have increased their demand for Brazilian sugar since October 2024 – meaning that maybe the supply side, or even macro, have weighted more on the current price level. Macroeconomic relief and rumors of a smaller harvest in the Center-South of Brazil are the main factors for short-term price-recovery."

Challenges and opportunities for sugar prices

  • Positive outlook for Center-South’s 25/26 crop and resumed vessel nominations contribute to the current bearish trend.

  • International market's reliance on Brazil adds to price volatility; any downturn in Brazil’s availability could trigger a rapid price recovery.

  • April rains benefited mid-to-end-of-season cane yields in Center-South, but lost days in late April may impact crushing figures, potentially aiding July’s prices in the coming days.

  • Prices are influenced by China’s import arbitrage and ethanol parity. Demand from China has slowed, but Bangladesh, Malaysia, and Algeria have increased their demand for Brazilian sugar since October 2024.

  • Future prices will depend on weather conditions in Center-South, Europe, and India, besides the potential impact of a late La Niña on Mexico and Thailand.

Since the May expiry, the raw sugar July contract has encountered resistance in its recovery, reaching values as low as 16.97 cents per pound, a level not seen in the past four years. The higher-than-expected Brazilian deliveries in March and May are likely the primary factors behind this resistance, coupled with a shier purchasing behavior coming from the main importer, China. Additionally, the positive outlook for the CS 25/26 prospects contributes to a bearish trend, especially as the country resumes its vessel nomination pace, after a restricted April. As highlighted in other analysis, the increasing dependence of the international market on Brazil's availability adds to price volatility: any discrepancies between expected and actual figures can lead to more intense price fluctuations than what it usually meant in the past.


Image 1: Weekly Vegetation Health Index – Center-South

Source: NOAA, Hedgepoint



We remain optimistic regarding CS availability. April rains were favorable for mid-to-end-of-season cane, leading to a more significant VHI recovery and maintenance of soil moisture. Initial yields were anticipated to be poor, as the cane currently being crushed suffered the most during its development stage. However, we expect to see improvements moving forward. In the meantime, while the first fortnight of April benefited from average precipitation and fewer lost days, the second half is expected to show some downturn in crushing figures. The lost days may have compromised the fortnight's results, potentially contributing to a price recovery boost.

Image 2: Estimated Lost Days per Fortnight – No. Of Days

Source: Bloomberg, Hedgepoint

With prices hovering around 17.5 cents per pound, two key supports need to be carefully considered:

  • China Import Arbitrage: The arbitrage is currently open for non-producing regions and was briefly open for producing regions, remaining close to this support level. The country is expected to import at least another 2 million tons during 24/25, so it would not be surprising to see buying rumors emerging from the region. In fact, it would be unusual if no movement is observed. This could indicate that Chinese importers are waiting for even better prices – if possible. However, weather conditions have not been favorable for the country’s 25/26 crop development. Although the 24/25 crop is expected to exceed 11 million tonnes, a recent record, China might face a precarious situation if Guangxi yields deteriorate in the coming year.

  • Ethanol Parity: While sugar continues to pay a premium over ethanol and mix changes are viewed with skepticism, key supports that were higher than the biofuel level have been tested. This may place a cap on the rise of the sugar mix during the season, supporting our 51% estimate – especially if demand for fuel is higher than anticipated. This trend is worth monitoring.

Image 3: China Import Arbitrage Estimate (USD/t)

Source: Bloomberg, Refinitiv, Hedgepoint


Regarding demand, while it does indeed play an important role in the current price level, it is important to note that other destinations besides China have increased their demand for Brazilian sugar since October 2024. Specifically, Bangladesh, Malaysia, and Algeria have shown significant increases in their Brazilian imports and nominations until April 30, 2025, with rises of 16%, 26.7%, and 17.5%, respectively. Therefore, it appears that although some destinations might be quieter, demand might not be the only factor at play. The market seems to be pricing higher cane volumes than the rumored results for the Brazilian Center-South, highlighting the region’s importance and potential price impact.

Image 4: Brazilian Exports and Nominations to Bangladesh (left), Malaysia (center) and Algeria (right) until April 30 (‘000t)

Source: Williams, Hedgepoint

Despite our optimism about Center-South’s 25/26 results, the notion that demand is not as dormant as previously thought and might regain traction in the coming weeks suggests that a fair price for sugar would be around 18-18.5 cents per pound, at least. However, the speed of this potential rebound depends on the actual pace of nominations, weather conditions, and macroeconomic sentiment. The latter seems to have taken a turn last Thursday, with some regained optimism after the trade war de-escalated. The energy complex registered fairly good results, while gold lost some ground, supporting sugar prices.

Looking ahead, it is crucial to understand how weather conditions might influence the 25/26 results. So far, Inmet forecasts an average or even rainier May in Center-South, which could still boost cane yields. June and July are expected to be closer to average, providing favorable crushing conditions. These results align with the view that we are currently experiencing an ENSO neutral year, where both precipitation and temperature tend to revert to average levels.

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

Source: NOAA, Hedgepoint

However, in the Northern Hemisphere, Europe has been facing some challenges, with certain winter crop regions on alert. The top three beet (Germany, Poland and France) and sugar producers are at risk due to drier weather conditions. This, combined with the estimated area reduction for the 25/26 season, could lead to a greater need for imports than previously estimated.

Meanwhile, India is expected to experience better rains during the monsoon period, potentially boosting cane and sugar production in 25/26. However, given the current season’s results and the pressure from ending stocks, it might be difficult for the government to allow for exports.

The combination of these trends, along with the increasing probability of a late La Niña, which could disrupt crushing in Mexico and Thailand between December and February, adds some constructivism to March 26 sugar prices. Of course, this will depend on how the Center-South season plays out, but the increased dependence on Brazil seems to be growing even more significant.

In Summary

Since the May expiry, the raw sugar July contract has struggled to recover, touching briefly a four-year low of 16.97 cents per pound. This decline is primarily due to higher-than-expected Brazilian deliveries and reduced purchasing from China. The positive outlook for Center-South’s 25/26 prospects and resumed vessel nominations contribute to a bearish trend, while the international market's reliance on Brazil adds to price volatility: any downturn in the country’s availability could trigger a rapid price recovery.

April rains were beneficial for mid-to-end-of-season cane yields in Center-South, but lost days in the second half of April may impact crushing figures, potentially aiding July’s prices in the coming days recovering some ground. Prices are also currently influenced by China’s import arbitrage and ethanol parity. While demand has been slower, especially from China, other countries like Bangladesh, Malaysia, and Algeria have increased their demand for Brazilian sugar since October 2024 – meaning that maybe the supply side, or even macro, have weighted more on the current price level. Macroeconomic relief and rumors of a smaller harvest in the Center-South of Brazil are the main factors for short-term price-recovery.

Future prices will depend on various factors, including weather conditions in Center-South, Europe, and India, as well as the potential impact of a late La Niña on Mexico and Thailand.

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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