Jan 15 / Lívea Coda

Sugar and Ethanol Weekly Report - 2024 01 15

  Back to main blog page
"The market is currently navigating a delicate balance, teetering on the edge. At present, it appears to be leaning towards bearish tendencies, yet finding some support from the upcoming Ramadan period and disruptions in a crucial trading route."

Walking on thin ice: what are the risks?

  • Market conditions have shifted to a more balanced state, leading to a decline in prices and nearly neutral speculative positions.

  • Both raws and whites are in a delicate balance, with total global trade flows and supply and demand predicting a small surplus. Any disturbances could impact prices and speculative positions.

  • The market currently leans towards bearish tendencies, considering factors such as Brazil's positive results and the potential for another strong crop in 24/25.

  • Weather patterns, geopolitical conflicts and macroeconomics are crucial factors to monitor during 2024.

The market has shown signs of being well-balanced, instead of the extreme tightness previously anticipated. As a direct result of the more comfortable situation, prices melted while speculative positions nearly netted. A new comfortable range was settled between 20.5 and 22c/lb, and raws have swung among it.

The whites, however, tell a slightly different story. With a small deficit to be solved once the raws are processed, the white premium might find support in the short/medium run. Also, the ongoing conflict in the Red Sea adds to the recent gains. International trade with East Africa and East Asia faces disruption and cost increases.

Image 1: White sugar trade flow ('000t tq)

Source: Green Pool, hEDGEpoint

Image 2: Raw sugar trade flow ('000t tq)

Source: Green Pool, hEDGEpoint

One thing that raws and whites have in common is that both are walking on thin ice. They are basically in a balanced market, especially if added. Global trade flows and supply and demand are predicted to have a small surplus, which means that any disturbance could trigger prices and speculative players either way. An increase of 1.5Mt in the demand from any country could net current trade flows, while higher-than-expected yields in any producer could pile up. In this context, two questions emerge: where are we heading today and what should we monitor?

Image 3: Total trade flow ('000t tq)

Source: Source: Green Pool, hEDGEpoint

Looking at fundamentals today, market seems to be pending to the bearish side. Of course, prices remain historically high, but with Brazil’s great result so far and the possibility of another great crop in 24/25 coupled with some yield recovery in Maharashtra and Karnataka being reported, market might just stay comfortable for a while. Of course, the announced improvement in yields in some states in India doesn't guarantee a harvest comparable to previous years, preventing exports. It simply suggests that the situation may not be as extreme as initially portrayed.

Poor results in the Northern Hemisphere are already factored into the small surplus, but monitoring its magnitude is still crucial. For instance, sugar production in India between Oct-Dec reached 11.2Mt, 7.2% lower compared to the 22/23 season. In Thailand, the gap is higher, reaching a variation of -33% by December 23rd. However, the reductions remain within expected and we haven’t changed our forecast for both countries. India is expected to reach nearly 32Mt of sugar, with no exports, while Thailand 8.2Mt and reduced participation in global trade flows of a little over 5Mt.

Image 4: Global Supply and Demand – Mt rv

Source: Green Pool, hEDGEPoint

In addition to geopolitical conflicts impacting the global supply chain and ongoing developments in the Northern Hemisphere crop, there are other significant factors warranting close attention. The actions of Central Banks in their ongoing battle against inflation and unpredictable weather patterns are among these noteworthy considerations.

As to weather, we’ve discussed the implications of the recent dryness in Center South on our previous report, and the implications it had and might still have on the region’s sugar availability. On this report we would like to highlight a lurking risk: La Niña. ENSO forecast models started to indicate a possible direct shift from El Niño to La Niña this year. Of course, it is too soon to peg, but we should remember that the impact of these weather patterns on the sugar market depends on the period of its occurrence, duration, and intensity – contributing either to the bulls or the bears. Since the effect can change precipitation regimes, it usually affects yields.

Image 5: El Niño/La Niña Forecast–Nino Index3.4

Source: Columbia, hEDGEpoint

If active between June and August, and not so intense, it might be positive for increasing sucrose content in Center South. Also, it induces higher precipitation in India and Central America, possibly boosting 24/25 cane’s development. However, if extremely intense, it could add to the bulls with frosts in Center-South and floods in the Northern Hemisphere.

In Summary

The market is currently navigating a delicate balance, teetering on the edge. At present, it appears to be leaning towards bearish tendencies, yet finding some support from the upcoming Ramadan period and disruptions in a crucial trading route.

Weekly Report — Sugar

Written by Lívea Coda
Reviewed by Natália Gandolphi


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 (client.services@hedgepointglobal.com), please contact our internal ombudsman channel (ouvidoria@hedgepointglobal.com) or 0800-878-8408 (for clients in Brazil only).

To access this report, you need to be a subscriber.