Jun 3 / Laleska Moda

Sugar and Ethanol Weekly Report - 2024 06 03

  Back to main blog page

"The current state of ENSOS indicates that the transition to La Niña will occur a little later than expected, with the phenomenon becoming more active during the third quarter. In Brazil, the phenomenon tends to benefit cane harvest, due to low rainfall and higher temperatures in winter. However, it also increases the risk of fires and frosts."

La Niña is coming: how can the sugar market be affected?

  • The current state of ENSOS indicates that the transition to La Niña will occur a little later than expected, with the phenomenon becoming more active during the third quarter.

  • In Brazil, the phenomenon tends to benefit cane harvest, due to low rainfall and higher temperatures in winter. However, it also increases the risk of fires and frosts. A more intense La Niña from Q3 onwards raises concerns about the 25/26 development.

  • For the Northern Hemisphere, a moderate La Niña could bring benefit for production, especially in India.

  • In Central America, the hurricane season may pose a greater risk.

  • In Thailand, the event would bring above-average rainfall and affect cane quality.

The agricultural commodities market is closely linked to weather patterns such as La Niña and El Niño as they affect the supply side. Depending on the stage of development of the crop in question, these climatic phenomena can be either beneficial or detrimental to the yield of the agricultural product.

In our previous reports we have already mentioned some of the effects that the transition from El Niño to La Niña can have. In this report, therefore, we have tried to look in more detail at the possible scenarios and risks for the sugar sector as a result of this climate change.

Firstly, it is important to highlight that the initial expectations have changed, with the transition from El Niño to La Niña expected to occur a little later than initially expected, at the end of Q2 to the beginning of Q3. As a result, La Niña is expected to have its greatest impact in the third quarter, which brings some changes to its potential impact on cane and sugar beet harvests.

Image 1: Status ENSO – ONI Index (°C)

Source: IRI, NOAA

Before discussing the potential impact of La Niña, it is important to understand the ideal growing conditions for sugar cane and sugar beet, the raw materials used to produce sugar and ethanol. Both crops require rainfall during the growing season, but while sugar cane is suited to subtropical climates, sugar beet is typical of temperate climates and can tolerate lower temperatures.

Nevertheless, extreme conditions (drought, heat, and cold) affect the productivity of these agricultural products. For example, in 22/23 both Brazilian and EU production was affected by summer droughts and a harsher winter.

Therefore, understanding the climatic changes caused by La Niña and over what period - as each country and region has its crop calendar - can give us some perspective for the coming months. A La Niña event is characterized by a decrease in the surface temperature of the waters of the Central and Eastern Tropical Pacific Ocean and the consequent strengthening of the trade winds. The latter pushes even more warm water towards Asia, significantly reducing the temperature of the west coast of the Americas.

Image 2: La Niña Temperature anomaly (C°) Sep-Nov

Source: Refinitiv

Image 3: La Niña Precipitation anomaly (mm) Sep-Nov

Source: Refinitiv

So how would a La Niña affect sugar production around the world?

Brazil: In Brazil, a moderate event tends to bring a drier winter in the Centre-South, possibly benefiting the 24/25 harvest. However, a more intense La Niña could lead to frosts and fires, resulting in lower yields and accelerated crushing, also damaging the crop. In addition, if the dry spell extends into the spring - as La Niña is expected to be more intense in Q3 - the development of the 25/26 season could be jeopardized, as was the case in 20/21, when Brazil recorded a crush of only 523 Mt.

India: A moderate La Niña brings the possibility of a good monsoon season. In fact, the Indian government recently indicated that most of the country is likely to receive an above-average monsoon, which should help the development of the 24/25 sugar crop. However, if it is too intense, it could cause flooding.

Europe: In general, weather patterns have little influence and correlation with rainfall and temperatures in the block. A La Niña or an El Niño could be responsible for a slight increase in rainfall between March and August, which could favour the sugar beet development stage. On the other hand, a La Niña event could result in lower rainfall from September to November, the peak of the sugar beet harvest, which could benefit field operations.

Central America: A moderate La Niña tends to increase rainfall during the sugar cane development period (June to September), which can be beneficial to production if it is not excessive. In the latter case, rainfall could delay or hamper the pace of harvesting and reduce sucrose content. In addition, the event could intensify the hurricane season in the region, potentially damaging crops.

Thailand: La Niña has a low climatic correlation with rainfall and temperature in the country between September and November, but if it is very intense it could lead to lower rainfall. However, the event's highest correlation is between March and May, which could bring drought to Thailand during the harvest season, which would benefit activities.

Image 4: Crop Calendar - Main producers

Source: Hedgepoint, CONAB, EC, ICCO, ISMA 

In Summary

Climatic events such as El Niño and La Niña impact (positive or negative) the production of agricultural commodities such as sugar. The next few months will be marked by the transition, albeit later than expected, from El Niño to La Niña.

The impact of this event on sugar production will vary from region to region and also according to the intensity of the phenomenon. A moderate La Niña may benefit sugar production by bringing a drier CS winter and an above-average monsoon season. However, if it is too intense, it can cause flooding and reduce solar radiation in the Northern Hemisphere, intensify the hurricane season in Central America and threaten the development of the 25/26 harvest in the SC.

Weekly Report — Sugar

Written by Laleska Moda
Reviewed by Lívea Coda


This document has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes, without the purpose of instituting obligations or commitments to third parties, nor is it intended to promote an offer, or solicitation of an offer of sale or purchase relating to any securities, commodities interests or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. The trading of commodities interests such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors.  Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgement and outside advisors before entering in any transaction that are introduced by the firm. HPGM and its associates expressly disclaim any use of the information contained herein that directly or indirectly result in damages or damages of any kind. In case of questions not resolved by the first instance of customer contact (client.services@hedgepointglobal.com), please contact our internal ombudsman channel (ombudsman@hedgepointglobal.com) or 0800-878- 8408/ouvidoria@hedgepointglobal.com (only for customers in Brazil).

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