Jun 10 / Lívea Coda

Sugar and Ethanol Weekly Report - 2024 06 10

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"Global supply and demand dynamics for 24/25 are uncertain, but with Brazil's increased availability in 2024, it limits significant price rebounds in 2024, suggesting that the current uptrend in prices may be short-lived."

Short-lived uptrend

  • Sugar prices increased due to technical factors despite challenges like a strong dollar and weak energy markets.

  • Bullish sentiment was fueled by rumors of Chinese buying and lower-than-expected Brazilian sugar mix.

  • Concerns remain over dry weather in Brazil's Center-South, mitigated by higher cane volume and TRS levels.

  • Short- and medium-term fundamentals appear stable, with the 23/24 season anticipated to be surplus.

  • Uncertainty looms for the 24/25 outlook, contingent on weather conditions, especially in India and Thailand.

  • Brazil's increased sugar availability during 24/25 may limit significant price rebounds in the near term.

Sugar swiped up on a technical move last week. The sweetener’s resilience, considering the general framework of a stronger dollar - especially compared to BRL - and a weaker energy complex, enabled the July contract to breach the 19 c/lb level. Even though fundamentals didn’t change, some news were highly discussed.

Image 1: Sugar showed some resilience after the correction in the energy complex

Source: Refinitiv, Hedgepoint

For instance, India’s crushing season is coming to an end, with 31.67Mt of sugar being produced until May 31st and only 3 mills still operating. According to the National Federation of Cooperative Sugar Factories Limited (NFCSF), the country’s total availability should reach 32.1Mt, only 3.8% lower compared to 22/23. Also on India, the monsoon season is predicted to be a healthy one, contributing to a more optimistic expectation regarding 24/25 cane development.

While the latter is in line with a more bearish outlook, rumors regarding Chinese cash buying, although not entirely in line with current fundamentals, might have added to a more bullish sentiment. The fact that Brazilian sugar mix was lower than market’s expectations for May’s first fortnight also played a part in recent price action, especially when the market is still highly concerned about the dry spell that is currently affecting Center-South. However, there are some caveats.

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

Source: ISMA, AISTA, NFCSF, Hedgepoint

The first one is that cane volume is surpassing market estimates consistently. The second is related to Total Recoverable Sugar (TRS). Lower precipitation during Center-South’s winter can trigger a higher index, and thus, more raw material for sugar production. Therefore, even with a marginal lower sugar mix, estimated at 51.7% for the 24/25 crop season, Brazil is still expected to have a healthy amount of the sweetener.
Statistical models considering past production, lost days, and soil moisture point out a 9.85% decrease in TCH, from a cumulative 87.1 t/ha on 23/24 to 78.53 t/ha on 24/25. Therefore, we revised our cane figures from 605.5 to 613.5Mt – in line with the current crushing pace and volume. Coupled with a 51.7% sugar mix and a 139.1 kg/t ATR, Center-South can achieve 42Mt of the sweetener, its second-best result.

Consequently, the region is also expected to keep its export pace. May exports were approximately 17% higher year-on-year, with SECEX showing total shipments at 2.8Mt and Williams presenting a similar volume. With a stable cash premium at around +30 pts (June) and +17 pts (July), the country is currently the main source of sugar to the international market, which might explain mills' eagerness to keep pushing.

Image 3: Center-South Area and TCH evolution

Source: Unica, Conab, Hedgepoint

Therefore, short- and medium-term fundamentals haven’t changed much. The 23/24 Oct-Sep season should still be a surplus, reflecting a comfortable trade flow during 2024. The 24/25 year, however, is still highly dependent on weather, as discussed in previous reports. (If you want to know more about La Niña risks and effects, read our previous report.)

Although anticipated monsoons could boost India's cane production, certain stakeholders foresee a significant decrease in the country's yield due to area reduction. Nevertheless, given that cane proves to be a more profitable option for the average farmer and considering the government's willingness to address ethanol program's delays, we maintain a cautious stance toward this projected trend. Therefore, we have a higher expectation for India’s gross sugar production (37.2Mt), ethanol diversion (5.5Mt), and net results (31.7 Mt). Just a mental note: remember that the market was betting on 29Mt at the beginning of 23/24 and we are closer to 32Mt!

Regarding Thailand, we remain conservative at 10.5 Mt. While some houses point to a sugar production closer to 11.5Mt, uneven weather patterns and La Niña’s possible effects prevented us from revising it.

Image 4: Thailand precipitation anomaly forecast – June (left), July (center) and August (right) in mm

Source : Thai Meteorological Department

In the event of positive crop development in the 25/26 Center-South region, the global supply and demand balance for Oct-Sep 24/25 could tilt towards another year of surplus, potentially resulting in an abundant supply, especially in Q3/25, mimicking Q3/24.

However, this scenario remains quite uncertain and, because the 2025 contracts rely on unpredictable weather, it's easier to talk about 2024. Brazil's increased availability may hinder significant price rebounds, particularly for the July and October contracts. Hence, the current upward trend could be short-lived, having already moved back under 19 c/lb by Friday’s end.

Image 5: Total Trade Flows ('000t tq)

Source: Green Pool, hEDGEpoint

In Summary

Last week, sugar prices surged due to technical factors despite a backdrop of a stronger dollar and weaker energy markets. Rumors of Chinese buying and lower-than-expected Brazilian sugar mix also contributed to the bullish sentiment. Concerns persist regarding the impact of dry weather in Brazil's Center-South, although higher cane volume and TRS levels could mitigate some of these worries. Statistical models predict a lower decrease in TCH for the 24/25 season, and Brazil is still expected to produce a healthy amount of sugar, maintaining its position as a key exporter.

Looking ahead, short- and medium-term fundamentals remain relatively stable, with the 23/24 season anticipated to be a surplus, while the 24/25 outlook hinges heavily on weather conditions. Anticipated monsoons in India could boost cane production, but uncertainties persist regarding potential area decreases. Meanwhile, our sugar production forecast for Thailand remains conservative due to uneven weather patterns and the possibility of La Niña effects. Global supply and demand dynamics for 24/25 are uncertain, but with Brazil's increased availability in 2024, it limits significant price rebounds in 2024, suggesting that the current uptrend in prices may be short-lived.

Weekly Report — Sugar

Written by Lívea Coda
Reviewed by Natália Gandolphi


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