Oct 7 / Lívea Coda

Raw is supported, whites... Not that much

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"The raw sugar market remains supported by a somewhat stable demand and bullish energy dynamics, despite global uncertainties, with March futures closing last week at 23 c/lb. Brazil's Center-South is experiencing reduced yields due to droughts and fires, tightening the quality’s supply and driving speculative buying. However, recovery in the Northern Hemisphere, particularly in the EU, India, and Thailand, is helping stabilize white sugar prices."

Raw is supported, whites... Not that much

  • The October contract expired at 22.67 c/lb, with over 1.7Mt of sugar being delivered. The bullish momentum that marked the week prior to its expiry might have encouraged some to deliver on tape.

  • Droughts and fires in Brazil's Center-South have reduced expected sugar production and quality, tightening supply and leading to increased speculative long positions in the market.

  • Recovery in the Northern Hemisphere, especially in Thailand, India, and the EU, is stabilizing white sugar prices, pressuring the white premium.

  • Thailand anticipates significant sugar production due to favorable weather.

  • Optimism regarding India is increasing, and other houses have started to discuss the possibility of the government's allowing exports once stocks start to build up.

  • The EU has raised its sugar beet yield forecast, contributing to greater availability and our projected output of 16.5 million tons for the region and the UK combined, predominantly higher-quality sugar, which enhances balanced trade flows.

The October contract expired at 22.67 c/lb, showing an inverse spread compared to March at +20 points, which reversed from a carry of -39 points just a week earlier. This bullish shift may have encouraged more producers, particularly from Brazil's Center-South, to opt for delivering on tape, resulting in a final amount of 1.7 million tons. While the market could have interpreted this as a bearish signal – especially given that the sole receiver has shown no concern about sugar availability and has kept ship nominations slow in Brazilian ports – prices maintained a supportive tone.


Image 1: Raw Sugar Delivery (Mt)

Source: ICE, Hedgepoint

Despite a somewhat uncertain macroeconomic environment, shaped by heightened risk perceptions due to escalating conflict in the Middle East, the bullish momentum in the energy complex appears to outweigh these concerns, supporting sugar prices. Coupled with firm demand, this dynamic pushed March futures to close last week at 23 cents per pound. While the white sugar premium has corrected to around $80/ton, Brazil's cash premium remains positive, and supply tightness may continue to provide short-term price support, however, this diversion between markets might limit raws’ gains in the medium-long term.

As outlined in previous reports, droughts and fires have led to significant downward revisions in the expected sugar mix for the Center-South’s 2024/25 crop, as well as reduced overall cane yields. The lower availability and quality of raw materials are resulting in decreased sugar production and a tighter, potentially prolonged intercrop season. This supply constraint has shifted market sentiment, prompting funds to increase their speculative long positions.

Image 2: Raw Sugar versus Brent

Source: Refinitiv, Hedgepoint

However, when analyzing the Northern Hemisphere – a key supplier of white sugar –recovery expectations are partially responsible for the slower response of white sugar prices compared to the bullish trend in raw sugar. This has pressured the white premium and could act as a potential cap on the rise of lower-quality sugar prices, as it may signal weakening demand if they climb too high. Some of the fundamentals behind this trend can be found in Thailand, India and Europe.

Image 3: Weekly White Premium Seasonality (10 years - Usd/t)

Source: Refinitiv, Hedgepoint

Thailand experienced favorable rainfall during the development of the 2024/25 crop, while the planted area expanded as sugarcane regained competitiveness over cassava. As a result, it is expected that the country could produce over 100Mt of cane, reaching close to 11Mt of sugar production – with a possible upside. This volume would allow Thailand to contribute with nearly 8Mt of sugar to the international market – of which, the country is able to transit between qualities and at least 40% is expected to be of refined sugar.

In India, sentiment has become more optimistic regarding the country’s production, with increasing discussions around potential sugar exports. Some anticipate that the government may make a decision between late December and January, once the new crop gains momentum and stocks begin to build up. At present, we expect that at least 1.5 million tons of sugar could be approved for export, especially given the strong monsoon performance and favorable stock projections. The start of the new season could be delayed by the Diwali festivities, but shouldn’t disrupt positive results.

In the EU, the MARS agency raised its sugar beet yield forecast to 74.7 t/ha, widening the gap from the 5-year average by 2%. This optimism is attributed to predominantly favorable weather in Western Europe, which also lifted yield forecasts for other key crops like potatoes and green corn. In line with this trend, the European Commission also revised its yield expectations upward, and when combined with our estimates for the United Kingdom, the region is projected to produce 11.08 tonnes per hectare—consistent with the 5-year average. Additionally, a 5.4% increase in beet acreage contributes to greater availability, reducing the region's need for imports. After accounting for ethanol production, we currently estimate the region's sugar output at 16.5 million tons. Notably, the majority—if not all—of this will be higher-quality sugar, which contribute to more balanced trade flows of white sugar.

Image 3: EU 27 + UK sees increased area and healthy yields

Source: ICE, Hedgepoint

Image 5: Total trade flows (‘000t tq)

Source: GreenPool Hedgepoint

Image 6: Raw’s trade flows (‘000t tq)

Source: GreenPool Hedgepoint

Image 7: White’s trade flows (‘000t tq

Source: GreenPool Hedgepoint

In Summary

The raw sugar market remains supported by a somewhat stable demand and bullish energy dynamics, despite global uncertainties, with March futures closing last week at 23 c/lb. Brazil's Center-South is experiencing reduced yields due to droughts and fires, tightening the quality’s supply and driving speculative buying. However, recovery in the Northern Hemisphere, particularly in the EU, India, and Thailand, is helping stabilize white sugar prices. Thailand's crop benefited from favorable weather, and India could approve some exports during the 2024/25 season. The EU is also projecting higher sugar beet yields. Combined with improved supply from other white sugar producers like Mexico and Central America, this contributes to more balanced white sugar trade flows and a bearish outlook for the white premium, which may limit raw sugar price gains in the medium-to-long term.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Victor Arduin
victor.arduin@hedgepointglobal.com
www.hedgepointglobal.com

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