Sugar | Short-term shows signs of tightening

• Center-South results disappointed in early August, reinforcing concerns over short-term sugar availability. 
• Volatile weather linked to the super El Niño continues to disrupt crushing, TRS recovery, and sugar mix performance. 
• We lowered our sugar production forecast by 1.4 Mt to 38.5 Mt, reducing export availability. 
• Tighter supply prospects in Brazil, combined with weaker crops in India and the EU, support prices above 18 c/lb; however, we are not at a severe shortage scenario.
• Expectations of stronger cane availability and a higher sugar mix in CS in 2027/28 remain the main bearish factor.

The sugar market has continued to test new highs, but unlike in recent weeks, data from Brazil's Ministry of Agriculture (MAPA) suggests that one of the market's key bearish arguments is losing strength. The first-half August results for the Brazilian Center-South were weaker than expected, raising concerns over the region's production potential and challenging assumptions of abundant sugar availability in the short-term.

Center-South crushing has been on a roller coaster this season. Cane processing recovered sharply from 31.15 million tons in the second half of June to 50.6 million tons in the first half of July, before easing to 46.08 million tons and then rebounding to 48.4 million tons in the first half of August, according to MAPA. This volatility reflects the irregular rainfall pattern associated with the ongoing super El Niño.

Over the same period, the ethanol mix increased steadily from 43.1% to 51.2%. Despite this improvement, it remains below the level that would be expected given the current price advantage of sugar over ethanol. Meanwhile, TRS rose from 138.0 kg/t to a peak of 141.0 kg/t before stabilizing at 140.3 kg/t. Although improving, TRS remains well below the five-year average of 149.5 kg/t for the period, largely due to unfavorable harvesting conditions and thus contributing to the mill’s mix change challenges.

As a result, we have revised both our sugar mix and TRS assumptions for the season, reducing sugar production and export availability. This adjustment comes despite vegetation health indicators continuing to point to strong cane yields and robust crop volumes.

Before discussing our expectations, it is worth addressing the delay in UNICA's reporting. Currently, UNICA data is running two months behind MAPA's figures. While the latest available report from the agency is from June’s second fortnight, the Ministry has already released August first half. Nevertheless, the data available paints a similar picture of a crop that is increasingly geared toward ethanol production, though not necessarily by choice.

As of the second half of June, cumulative cane crushing reached 214.5 million tons according to UNICA, up 3.8% year-over-year. Despite the larger crop, sugar production fell 12.4% to 10.75 million tons, while ethanol output surged 20.4% to 11.37 billion liters. This shift was driven by a substantial increase in the ethanol mix, which rose from 49.0% to 57.5%, reducing the sugar mix from 51.0% to 42.5% throughout the period. The data reinforces the view that operational and weather-related challenges have constrained sugar production, even as cane availability has remained supportive.

A comparison between the two databases for June confirms broadly similar trends, although some differences remain. MAPA reported slightly higher cane crushing than UNICA (70.39 million versus 69.79 million tons) and marginally higher sugar production (3.922 million versus 3.903 million tons). However, substantial discrepancies emerged in ethanol volumes, with MAPA showing significantly lower anhydrous ethanol production but higher hydrous ethanol output. TRS values were nearly identical between the two sources, while the sugar mix differed by less than half a percentage point.

As a result, we have shifted our base case further down our stress scenario outlined in previous reports (link). We now expect the sugar mix to remain near 46.8%, while TRS is unlikely to exceed 135.6 kg/t for the season – especially after a rainy start in September and current weather forecasts. Keeping our cane volume expectations unchanged at 635.5 Mt, these assumptions imply a reduction of 1.4Mt in sugar production, now projected at 38.5 Mt. This downward revision directly reduces export availability and tightens the global trade balance.

Combined with worsening crop prospects in both the EU and India, the near-term tightening in the Center-South provides sufficient support for sugar prices to remain above 18 c/lb. Meanwhile, speculative funds have reinforced bullish sentiment by expanding their net long positions and increasing bets on further price gains, while also using sugar and other commodities exposure as a hedge against persistently elevated global inflation.

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