
Oct 9
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Lívea Coda
Sugar and Ethanol Weekly Report - 2023 10 09
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"No wonder the market still holds its ground at 26 USc/lb: the two biggest Northern Hemisphere players are way below their average participation inducing a high deficit in Q1/24. However, let's keep in mind that the bullish trend might not be as strong as previously anticipated.."
Sugar market resilience: insights and Thailand’s role
- The sugar market has remained resilient despite bearishness in external markets. Both WTI oil and RBOB gasoline saw significant price declines last week, around 9% each, attributed to reduced gasoline demand per the EIA's report and the potential lifting of Russia's diesel ban.
- Sugar's strength is supported by tight availability in the Northern Hemisphere and recent precipitation in the Center-South, which could disrupt exports.
- Thailand is a major sugar player, typically exporting around 70% of its total production, an average of 7.3Mt. Weather challenges and area competition added a cap to the country’s expected participation on 23/24’s season.
- With over 250 USD/ha difference between cassava and cane’s return, cane area is expected to drop at least 5.6%. Combined with yield reduction caused by lower-than-average precipitation, the country is expected to produce 8.2Mt of sugar, and export close to 5Mt, compared to 7.8Mt expected to this season (22/23 crop year – Dec/Nov).
Sugar has failed to react to external market bearishness. Both main energy benchmarks, WTI oil and RBOB gasoline, registered substantial losses to their prices during last week, reducing about 9% each. This decline was attributed to the EIA's most recent report indicating a decline in gasoline demand and the news suggesting that Russia might soon lift its diesel ban. The sweetener resilience appears to remain supported by tightness in the Northern Hemisphere's availability, and, more recently, precipitation increases in the Center-South, which could partially disrupt sugar export flows. We should keep in mind, however, that OPEC+ has opted to maintain its existing oil output policy, adhering to the commitment made by Saudi Arabia and Russia to extend voluntary supply cuts until the end of the year. This means that the correction to the energy complex might be short-lived, and its reaction could add to sugar fundamentals, providing support to prices.
Image 1: Raw Sugar versus Oil Benchmark

Source: Refinitiv, hEDGEpoint
In our previous report, we discussed that fundamentals still point out supportive prices in the short-medium term – while we focus on the March contract, at least. But improvements to the EU, Ukraine, Russia, and Brazil might prevent the previously expected surge in prices, adding a cap to future gains. Note, however, that this doesn’t mean that prices will start correcting anytime soon: there is still a high deficit expected for Q1/24 given India and Thailand’s lower availability.
Speaking of, Thailand is the main theme to this report. Why and how does the country contribute to the elevated sugar price range we’ve been experiencing?
Image 2: Total Sugar Trade Flows (‘000 tq)

Source: hEDGEpoint, Green Pool
Thailand is an important sugar player as it provides, on average, 7.3Mt of the sweetener to the international market. This means that of the country’s total production, about 70% is usually exported. Nevertheless, Thailand's involvement in global trade flows experiences fluctuations due to weather adversity and competitive factors, introducing another source of volatility to the commodity’s price. This year, for instance, Thailand has faced adverse weather with below-average precipitation throughout cane’s key-development window (June-September). Weather forecast models also point to a dryer-than-normal October, adding further pessimism to the production downside.
Image 3: Monthly Precipitation Anomaly From June (left) until September (right)

Source : Thai Meteorological Department
Not only weather, but 23/24 total sugar output is also expected to be severely affected by cane's loss in its competition with cassava. Comparing only the guaranteed fresh cane prices determined by the government in 2023 with cassava’s root price, it seems to be a better deal to plant cassava. This decision becomes even more clear when looking into yields and combining these factors. Cassava yields are lower, yes, however, they are more stable than cane’s.
Image 4: Fresh Cassava Prices vs Fresh Cane Guaranteed (Baht/t)

Source: The Tai Tapioca Trade Association
Thailand’s Office of the Cane and Sugar Board (OCSB) defined the guaranteed fresh cane prices at 1080 Baht/t for 2023. Considering a yield of approximately 54.5t/ha, this means that farmers got a minimum of 1,594.2 USD/ha by producing cane during 22/23. Meanwhile, for cassava, the number is substantially higher, at 1,871.5 USD/ha (considering cassava’s average price during the last 12 months and a 21.23 t/ha yield).
Image 5: Cane Yields vs Cassava (t/ha)

Source: The Tai Tapioca Trade Association, hEDGEpoint
This trend is expected to linger, especially given poor cane development conditions and the tool that it is expected to have on yields. Therefore, besides revising our total cane estimates down from 75Mt to 70Mt, we also remain positive that area should decrease (5.7%). All factored in, production should be lower than the 5-year average by 20%, at 8.2Mt. Although not as small as in 20/21, Thailand’s participation in the global sugar market is far from what it once was, capping exports closer to 5Mt.
Image 6: Area expectation (Mha)

Source: The Tai Tapioca Trade Association, hEDGEpoint
No wonder the market still holds its ground at 26 USc/lb: the two biggest Northern Hemisphere players are way below their average participation inducing a high deficit in Q1/24. However, let's keep in mind that the bullish trend might not be as strong as previously anticipated.
India’s crop doesn’t seem to be as bad as rumoured, as discussed in our previous report, and other countries, such as Germany and Poland, have shown quite some improvement in past weeks – the European Commission even increased its production forecast by 1Mt for the bloc. Of course, the main bearish force still acts on the future contracts, July 24 and October 24, when market starts pricing some optimism regarding Brazil’s 24/25 crop season.
India’s crop doesn’t seem to be as bad as rumoured, as discussed in our previous report, and other countries, such as Germany and Poland, have shown quite some improvement in past weeks – the European Commission even increased its production forecast by 1Mt for the bloc. Of course, the main bearish force still acts on the future contracts, July 24 and October 24, when market starts pricing some optimism regarding Brazil’s 24/25 crop season.
In Summary
Despite a bearish trend in external markets, the sugar market has demonstrated resilience. Sugar's strength is underpinned by constrained supply in the Northern Hemisphere and recent rainfall in the Center-South, which has the potential to disrupt sugar exports.
Thailand plays a substantial role in the sugar industry, typically exporting around 70% of its total production, averaging 7.3 million metric tons. Challenges stemming from weather conditions and competition have limited the country's anticipated participation in the 23/24 season.
Weekly Report — Sugar
Written by Lívea Coda
livea.coda@hedgepointglobal.com
livea.coda@hedgepointglobal.com
Reviewed by Pedro Schicchi
pedro.schicchi@hedgepointglobal.com
pedro.schicchi@hedgepointglobal.com
www.hedgepointglobal.com
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