Nov 6 / Lívea Coda

Sugar and Ethanol Weekly Report - 2023 11 06

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"The Brazilian CS is the main bearish force. However, its influence remains limited until the expiration of the March contract, which generally reflects availability in the Northern Hemisphere. This year, all evidence points to shortages in the region. There is a bullish trend gaining momentum for this contract."

November is finally here

  • Northern Hemisphere's crop prospects for the upcoming season are being closely monitored; forecasts have been updated by some agencies.

  • Raw sugar prices experienced fluctuations but rebounded to above 27.5 USc/lb following ISMA's estimate of 33.7Mt for India's 23/24 crop, indicating a decline from the previous season.

  • India could produce around 30Mt of sugar even after considering ethanol diversion, suggesting a positive balance between production and consumption in 23/24.

  • Thailand's sugar production is expected to reduce to 7-8Mt in 23/24, leading to concerns about the country's participation in the global market.

  • This shortage is not yet entirely felt by the destinations, as Brazil remains quite strong and trading at a discount, forcing a cap over price surges.
With the beginning of November, the Northern Hemisphere’s crop prospects become a little more tangible. Although no realized crushing reports have been released so far, some agencies updated their forecasts for the season.

Raw sugar prices started the week correcting only to bounce back to above 27.5 USc/lb on Wednesday, following ISMA estimates of 33.7Mt for the 23/24 crop, a sharp decline compared to 22/23’s 36.6Mt. After considering about 3.5Mt ethanol diversion – given that a short crush window may jeopardize the country’s ability to produce the biofuel – India would still be able to produce around 30Mt of the sweetener.

Image 1: Raw sugar prices bounced back (USc/lb)

Source: Refinitiv, hEDGEpoint

Therefore, we agree with the agency that one should expect a positive balance between production and consumption in 23/24, possibly leading to a stock-building movement as the government is set to prioritize domestic prices. As a result, India’s production update offered no change to our trade flows figures, as no exports were already expected.

Image 2: India’s Sugar Balance (Mt Oct-Sep)

Source: ISMA, AISTA, hEDGEpoint

Simultaneously, Thai Sugar Millers Corp. also released a statement regarding Thailand’s 23/24 crop situation and forecasts. According to the agency, the sweetener production is set to reduce to 7-8Mt, or a drop of over 25%, impacting the country's participation in the global market. As discussed in previous reports, we expect Thailand to produce 8.1Mt and export only 5.1Mt, compared to the expected 7.9Mt in 22/23 (Dec-Nov).

However, the bullish developments from Thailand were not limited to that. The recent government decision, made last Tuesday, to categorize sugar as a controlled commodity will significantly affect the sector. Like other controlled goods, this classification implies that any changes in retail prices (or export volumes) will require approval from a regulatory panel. While the authorities' goal is to ensure domestic sugar supplies and manage inflation, millers are apprehensive that this could result in delays when fulfilling delivery contracts.

Image 3: Thailand Sugar Balance (Mt Dec-Nov)

Source: The Tai Tapioca Trade Association, Thai Sugar Millers, Sugarzone, OCSB, hEDGEpoint

These events contribute to a well-known trend: market tightness. But mind, this shortage is not yet entirely felt by the destinations, as Brazil remains quite strong and trading at a discount, forcing a cap over price surges.

The lack of Northern Hemisphere product will be especially felt during Brazil’s offseason. Of course, with more cane, Center-South will be able to provide more than usual, but rains are set to get in the way – as usual. Between November and February, the lost days tend to increase from approximately from 1 during winter to more than 3 days. Combining rains with worn cane, it becomes difficult for mills to maintain a max sugar mix. Still, the region will keep producing as much of the sweetener as possible given price disparity.

Therefore, Q1/24 is when we can expect destinations to start feeling the shortage. But mind, the market’s consensus is that, in the absence of any intense climate event, Brazil is set for another good year in 24/25, making Q1/24 and Q2/24 the only window for the bulls to play.

Image 4: Global trade flows (‘000t tq)

Source: Green Pool, hEDGEpoint

In Summary

The Brazilian CS is the main bearish force. However, its influence remains limited until the expiration of the March contract, which generally reflects availability in the Northern Hemisphere. This year, all evidence points to shortages in the region. There is a bullish trend gaining momentum for this contract.

Weekly Report — Sugar

Written by Lívea Coda
[email protected]
Reviewed by Pedro Schicchi
[email protected]
www.hedgepointglobal.com

Disclaimer

This document has been prepared by hEDGEpoint Global Markets LLC and its affiliates ("HPGM") exclusively for informational and instructional purposes, without the purpose of creating obligations or commitments with third parties, and is not intended to promote an offer, or solicitation of an offer, to sell or buy any securities or investment products. HPGM and its associates expressly disclaim any use of the information contained herein that may result in direct or indirect damage of any kind. If you have any questions that are not resolved in the first instance of contact with the client ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878-8408 (for clients in Brazil only).

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