Sep 18 / Laleska Moda and Carolina França

High availability limits price recovery, attention turns to China

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High availability limits price recovery, attention turns to China

  • Raw sugar prices are generally on a downward trend. After the sharp decline in early September, the nearby contracts have been trading in a range of 15 to 17 c/lb, given expectations of good availability in Brazil and better prospects in the Northern Hemisphere, particularly in India and Thailand.

  • Although lower sugar prices have reignited the possibility of a reduction in the sugar mix in Brazil in the coming months, with more favorable parity for ethanol production, the expectation is still for a higher sugar mix in the 25/26 season.

  • In addition, the latest TCH data showed an improvement in productivity compared to the same fortnight last season, reinforcing our previous expectation of a total crushing of 605 Mt in Brazil CS. With the current blend and ATR levels, this could still mean production of 40.9 Mt of sugar.

  • On the other hand, at the level of 15 c/lb, Chinese arbitrage is also open and may lead to higher imports from the Asian country – as seen in July – preventing raw sugar prices from falling further.

Raw sugar prices fell sharply in early September, pressured by expectations of greater availability in Brazil and the results of Unica reports. Mills favored sugar production over ethanol, contributing to increased supply in the market.

In addition, a more promising outlook for the Northern Hemisphere – especially for sugarcane crops in India and Thailand, following good rains this year – reinforced the pressure on prices. As a result, the October contract for raw sugar reached a two-month low in the first week of the month, quoted at 15.55 c/lb.

Raw sugar prices c/lb (1st contract)

Source: LSEG

After the lows, raw sugar prices recovered somewhat, with a more favorable parity for ethanol production in Brazil, especially in the states of Mato Grosso, Mato Grosso do Sul, and Goiás, with the possibility of a reduction in the sugar mix. However, until the end of August, the sugar mix was still favored. Thus, according to the latest Unica report, ethanol production was 2.42 billion liters in the second half of August, with a cumulative total of 18.48 billion liters, down 10% from the previous cycle.

Thus, the latest report highlights a higher sugar mix in the country - with a record of 55% in the first half of August and a still high mix of 54.2% in the second half - leading us to maintain our estimates of a 52% mix in the 25/26 season, higher than in previous cycles.

Raw Sugar and Hydrous Future Parity (USc/lb)

Source: LSEG

In addition, TCH data released by the CTC on Monday, September 15, indicated better-than-expected conditions for the second half of the harvest. Although average productivity in August, which was 77.5 t/ha, still showed a 1.6% decline compared to 2024, the difference from the previous harvest is steadily decreasing—the year-over-year difference was 10-11% in May and June, for example.

Sugarcane crushing reached 50.06 Mt in the second half of August, 10.68% above the same period last year. This also reinforces our expectation of better-than-expected sugarcane crushing in the second half of the 25/26 harvest, with our total sugarcane crushing forecast for the harvest at 605 Mt.

CS Sugar Crushing – Fortnight (Mt)

Source: Unica

Although the biweekly ATR was 149.79 kg/t (-3.89% compared to the same period in 2024), the sugar mix of 54.2% sustained production, which reached 3.8 Mt of sugar, +18.2% compared to the previous year. This brought the cumulative total for the 25/26 harvest to 26.76 Mt of sugar, reducing the production deficit compared to the previous harvest from 4.67% to 1.92%. Thus, we also maintain our total production estimate of 40.9 Mt for the entire cycle.

CS Sugar Mix – Fortnight (%)

Source: Unica

With a more “comfortable” outlook for supply in the coming months, futures prices for the raw material are currently struggling to exceed the level of 17 c/lb. However, it is not only the fear of a drop in the mix in Brazil that keeps prices above 15 c/lb – as mentioned earlier – but, at these levels, we also must consider that Chinese import arbitrage is also open.

In July, imports from the Asian country totaled 740 kt, setting a record for the period. With international arbitrage favoring overseas purchases, China is expected to import larger volumes than previously projected, even in the face of strong domestic production and positive prospects for the 25/26 crop. Our current estimate includes 4.6 Mt of raw sugar and at least 1 Mt of syrup in sugar equivalent. Smuggling may still play a significant role, as seen in previous years.

CS Sugar Production – Fortnight (Mt)

Source: Unica

With Chinese demand possibly helping to prevent sharper declines, we expect futures to remain in the $15-17/lb range in the short to medium term, unless new elements alter the fundamentals mentioned above.

Key Sugar Indicators

Source: LSEG, Bloomberg, Hedgepoint


In Summary

Raw sugar prices are on a general downward trend. After the sharp decline in early September, the nearby contracts have been trading in a range of 15 to 17 c/lb, due to expectations of good availability from Brazil and improved prospects in the Northern Hemisphere, particularly in India and Thailand. Although the recent drop in sugar prices favors ethanol production, the expectation for the 25/26 harvest is still for a greater share of sugar, reinforced by the high values indicated in the latest Unica reports. In addition, the latest TCH data in the country highlights the reduction in the productivity gap compared to the previous harvest, reinforcing our previous expectation that the total to be milled in CS Brazil will be 605 Mt. With the current mix and ATR levels, this could still mean that 40.9 Mt of sugar will be milled. On the other hand, with the level at 15 c/lb, Chinese arbitrage is also open and may lead to an increase in imports from the Asian country – as seen in July – preventing raw sugar prices from falling further.

Weekly Report — Sugar

Written by Laleska Moda and Carolina França
laleska.moda@hedgepointglobal.com
carolina.franca@hedgepointglobal.com
Reviewed by Thais Italiani
thais.italiani@hedgepointglobal.com
www.hedgepointglobal.com

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