Jan 29 / Lívea Coda

Sugar and Ethanol Weekly Report - 2024 01 29

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"The market, seeking reasons to move up, relying on demand’s seasonal support and undefined announcements, while Brazil remains a strong supplier."

Seeking reasons to move up

  • The sugar market has seen increased volatility due to a shift in fundamentals towards a more balanced scenario. Navigating in thin ice makes every new piece of information a possible trigger to prices, even when not entirely a fundamental movement.

  • The bullish took the lead. The announcement by the Indian government contemplating an 8% increase in the minimum price for sugarcane (FRP) for the 2024/25 season influenced prices. This, along with expectations of drier-than-average conditions in the Center-South summer, has contributed to increased prices.

  • However, Brazil demonstrated its force with a robust cane crush and a high sugar mix during January’s first fortnight, leading to a decline in prices below 24 cents per pound.

  • The market, seeking reasons to move up, relying on demand’s seasonal support and undefined announcements, while Brazil remains a strong supplier.
Sugar market volatility has experienced heightened levels since the shift in fundamentals towards a more balanced scenario. As discussed in previous reports, even a slight surplus or deficit can be likened to navigating "thin ice" in the market, with prices susceptible to movement based on prevailing forces. Last week, bullish sentiments took the forefront.

Although not fundamentally driven, prices tested the 24.6 cents per pound level following the announcement by the Indian government that it is contemplating an 8% increase in the minimum price for sugarcane paid by sugar mills in the 2024/25 season, known as Fair And Remunerative Price (FRP). Typically, the government establishes the FRP a few months before the commencement of the new crop season, but this year, an earlier announcement is under consideration to enhance sugar availability in the country. This development, combined with anticipations of drier-than-average conditions in the Center-South summer, served as a bullish factor.

Image 1: Raw sugar prices (c/lb)

Source: Refinitiv, hEDGEpoint

It is important to note that a final decision has not been reached in terms of the FRP, while our estimates for Brazil, 620Mt of cane in 24/25, already factor in second-best results, accounting for less-than-ideal weather conditions inducing a 6% reduction to TCH.

Image 2: 24/25 is far from being a failure

Source: hEDGEpoint

Thursday was the bears turn, and the Unica report reminded the market that Brazil is a force of nature. With a healthy 1.1Mt cane crush during January first fortnight and a 34.2% sugar mix, the region is closer to reaching 651M, especially with some mills announcing a 24/25 early start. Prices moved back below 24c/lb.

Also, last week, although perceived by some as bullish, India’s crushing figures released by ISMA were not only within expectation, but reduced the gap seen until December. By the end of last month, the difference between 23/24 crop season and 22/23 was of 7%. Adding January’s first fortnight, this difference dropped to 5.3%. The association added that the recent weather conditions have been positive for the current crop, prompting cane commissioners in key states such as Uttar Pradesh, Maharashtra, and Karnataka to upwardly revise their sugar production estimates for the 2023-2024 season by 5% to 10% each. This makes us even more comfortable keeping our sugar production estimates unchanged at nearly 32Mt.

However, this expected increase in availability drove ISMA to request Indian government to additional 1-1.2Mt sugar diversion to ethanol. If allowed, it could impact negatively our estimates, but note that it wouldn’t change the no exports scenario.

Image 3: India’s sugar balance (Mt tq – Oct-Sep)

Source: ISMA, AISTA, hEDGEpoint

Therefore, little has changed in terms of fundamentals. It seems that the market is looking for a reason to move up, relying on demand seasonal support to cash premiums and undefined announcements. Meanwhile, Brazil remains a strong supplier, with a healthy line up of nearly 3Mt until January 24, increasing port waiting time.

Image 4: Santos Cash Premium – Prompt (Usc/lb)

Source: Refinitiv, Green Pool, hEDGEPoint

In Summary

Last week was marked by a bullish force that peaked on Wednesday, when the Indian government announced that it was considering raising the FRP. However, little has actually changed in terms of fundamentals. In fact, the market remains at a tight balance. While we consider a small surplus, other houses count on a small deficit, but the bottom line is the same: tightness induces volatility. Any news or rumors could trigger short-lived price movements. Understanding the reality behind fundamentals is a must to understand when these movements will last. Right now, Brazil is doing what we expected: loading as fast and as much it can to supply during the Northern Hemisphere’s absence. Nobody said it was going to be easy, cash premium shows that, but it is feasible, and it is happening.

Weekly Report — Sugar

Written by Lívea Coda
Reviewed by Natália Gandolphi


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