Nov 4 / Lívea Coda

Slow market, higher macro influence

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"Recent rains in Center-South and the lack of other relevant news stabilized sugar prices, making them more influenced by external market factors like energy prices and macro framework."

Slow market, higher macro influence

  • Recent rains in Center-South and the lack of other relevant news stabilized sugar prices, making them more influenced by external market factors like energy prices and macro framework.

  • October was slow for sugar trading, with funds losing interest amid lower volatility.

  • Prices remain supported, with the March contract trading 500 points above historical averages, though stronger news is needed for any price breakthrough.

  • Brazil’s October exports likely topped 3 Mt, supporting stable prices. Reduced supply by the country in late 2024 may aid price-recovery, especially if India limits exports.

  • For 2025/26, CS cane output is revised to 600 Mt, dependent on summer rains, suggesting potential price support into 2025.

It seems that the lack of news coupled with the recent rains in the Center-South region and favorable weather forecasts are leaving sugar more exposed to external market factors. The energy complex meltdown on last Monday, with crude oil dropping over 5% and natural gas correcting by more than 10% amid easing geopolitical tensions, took a tool on sugar prices, which have been overall stable. As a result of a dull market, funds and speculators appear to be losing interest, with October proving to be a slow month for the March contract.


The removal of the risk premium associated with the war, combined with a stronger USD – despite the interest rate cuts in September – has contributed to a stable-to-weaker sugar market throughout last week. This trend is noteworthy, as it suggests that sugar is starting to regain its long-lost negative correlation to macro, hinting that the market currently lacks strong new fundamentals.

Image 1: Monthly correlation between the dollar index and raw sugar

Source: Refinitiv, Hedgepoint

This doesn’t mean that prices aren’t supportive. At above 22.5 c/lb, the March contract is trading with a premium of over 500 points compared to its historical level for this time of year, as are other contracts. In fact, the entire futures curve is offering an average premium of 400 points above historical levels. It simply means that for a stronger price reaction – and therefore greater volatility – there needs to be some evolution in the current fundamentals.

Image 2: Raw Sugar's Historical Future Curve Comparison (USc/lb)

Source: Refinitiv, Hedgepoint

The current price level supports a short-term bullish outlook on trade flows, but the question remains: when will this tightness actually start to be felt and potentially reinforce this trend? Brazilian vessels nomination were strong for October, suggesting that the country possibly exported over 3Mt, surpassing the registered amount during the same time in 2023, when rains disrupted loading. The good pace might be one of the factors keeping cash premium low in Santos, and a stable raw price. However, as we approach the off-season, Brazilian availability is expected to drastically reduce, to marginally lower than the 10-year average during the Q1/25, indicating the start of a price recovery, especially if India decides to not export. Currently we estimate that CS will export 31.5Mt of sugar during 24/25. a 5.3% reduction compared to 23/24.

Image 3: Total Exports - Brazil CS ('000t)

Source: Williams, SECEX, MAPA, Unica, Hedgepoint

While predicted rains could be beneficial to 25/26 crop development, they might add further pressure to availability, disrupting port loading operations and slowing export pace.

Looking ahead to the next CS crop, another question arises: when could prices start to lose support? After a potential increase during the off-season period, if the 2025/26 season experiences adequate summer rainfall, the bullish trend could begin to weaken by the end of February – or gain traction otherwise.

Image 4: Precipitation anomaly forecast (mm)

Source: inmet

By that time, not only we, but other analysts will have a clearer view on the new season. Currently, several factors are affecting the development of the CS’s 2025/26 season: fires have impacted the region, soil moisture levels are low, and planting suffered delays. As a result, we've revised our initial "educated guess" for cane output from 620 Mt to 600 Mt, still contingent on sufficient summer rainfall. This adjustment is based on similarities between the 2023/24 and 2024/25 seasons and the 2015/16 and 2016/17 crops. 20216/17 also suffered from a strong El Niño occurrence and comparable planting delays. By examining area and yield variations between 2016/17 and 2017/18 and applying these to our 2024/25 projections, we arrived at 600 Mt for 2025/26.

Lowering our cane production estimate implies a reduced bearish impact from Q2 2025 onward compared to previous forecasts, suggesting a higher price range and a smaller correction as the new season approaches.

Image 5: Historical area vs yield comparison

Source: Unica, CTC, Hedgepoint

In Summary

Sugar prices have reestablished a negative correlation with the dollar index as market fundamentals have clarified and guaranteed price-stability during October. This reduced volatility may be the main reason behind the reduction to speculative interest, leading to adjustments in long positions. 

However, prices continue to be supported by potential supply tightness as the Center-South region approaches its off-season period. A bullish outlook is expected for Q4 2024 through Q1 2025, but grasping the dynamics of the upcoming Center-South season will be crucial in assessing when, or if, the bullish trend might face resistance. While it is still too early to make definitive predictions, considering historical data as a proxy seems like a prudent approach as we await the summer rains..

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com
www.hedgepointglobal.com

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