Nov 8 / Lívea Coda

A week focused on macro and few changes in sugar

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"Recent rainfall in Center-South Brazil could disrupt the current crushing but supports 2025/26 crop development, benefiting sugar's H/K spreads. Sugar prices were somewhat stable last week, though with some fluctuations, as the period was largely influenced by macroeconomic events."

A week focused on macro and few changes in sugar

  • Recent rainfall in Center-South Brazil could disrupt the current crushing but supports 2025/26 crop development, benefiting sugar's H/K spreads.

  • Despite macroeconomic volatility, sugar prices remained somewhat stable during last week, with short-term supply concerns and seasonal factors offering support.

  • Trump’s election strengthened U.S. Treasury yields and the dollar, raising risk-aversion and potentially pressuring global commodity demand in the long term if an inflationary agenda is indeed pursued.

  • The potential reintroduction of U.S. tariffs and China’s recession risks could reduce China’s demand for commodities, including sugar.

  • The Fed cut rates by 0.25%, while Brazil’s Central Bank hiked by 0.50%, reflecting different economic priorities. The interest differential might benefit the BRL's strengthening, possibly supporting sugar prices – of course, depending on fundamentals.

  • Nevertheless, while we wait to see how macro unravels, sugar fundamentals remained stable amid last week’s macro shifts.

The main focus in the sugar market has been the long-awaited arrival of rains in the Brazilian Center-South. While higher precipitation may shorten the current season by disrupting crushing, it could be beneficial for the development of the 25/26 crop. Consequently, recent rainfall is expected to support the H/K spreads. As a result, sugar prices were somewhat stable last week, though with some fluctuations, as the period was largely influenced by macroeconomic events.

Image 1: 14-days precipitation anomaly ending Nov 6 (mm | left) and estimated cummulative precipitation in cane areas in Center-South (mm | right).

Source: Agweather, Bloomberg, Hedgepoint

On the macroeconomic front, the week was marked by the U.S. elections, a Federal Reserve meeting with interest rate cuts, and rising interest rates from the Brazilian Central Bank. The election of Trump has led to a strengthening of U.S. Treasury yields, driven by expectations that the new administration’s agenda will be inflationary. Anticipation of a stronger U.S. dollar could induce a risk-aversion scenario, attracting more capital into the U.S. and thereby weakening the purchasing power of other currencies – a bearish factor for commodities in general. On the day of the election confirmation, November 6th, the dollar Index surpassed the 105 level, not seen since July.

Image 2: Busy week on the macro front: BRL x DXY

Source: Refinitiv, Hedgepoint

Furthermore, the potential reinstatement of a 60% tariff on Chinese imports by the U.S. also dampens hopes for economic recovery in the Asian country, which is already grappling with a real estate crisis. Heightened recession risks in China could reduce its demand for certain types of commodities, such as sugar, which’s stocks are currently close to historical average and domestic production is expected to be higher.

Considering the 3% inflation target, the Brazilian Central Bank raised interest rates by 50 basis points, from 10.75% to 11.25%. This decision reflects concerns about the strong employment market and risks related to fiscal debt and meeting fiscal targets. Additionally, Trump’s election has introduced some uncertainty, particularly regarding the strength of Brazil's currency and investment attractiveness.

Meanwhile, the Federal Reserve has decided to implement a 0.25 percentage point rate cut on Thursday, citing recent indicators that show increasing economic activity and progress toward the 2% inflation target. While some specialists suggest that the new government's agenda could hinder further rate cuts, Fed Chair Powell emphasized that the central bank will continue to work towards loosing monetary policy. This has aided the market with some correction to treasury yields and the dollar index, which moved back to 104.5.

Image 3: Macro week impact on key commodities (Nov 1st =100)

Source: Refinitiv, Hedgepoint

While these turbulent macro conditions generally have a bearish effect, sugar has maintained its support. One reason is the recent rains in the Center-South region, which have raised concerns about short-term availability and vessel nominations. We estimate that rains during the weeks ending on October 30 and November 6 were close to average in the region, with some extremely penalized locations, such as Ribeirão Preto and Triângulo Mineiro, receiving well-above average rains. Another factor is the approach of Center-South’s off-season, a time of naturally lower sugar availability, that is expected to be especially reduced in a year when the primary supplier has faced adverse weather conditions. Therefore, there were no changes to fundamentals and any macroeconomic impact can be perceived as transitory.

Image 4: Sugar global trade flows (‘000t tq)

Source: GreenPool, Hedgepoint

In Summary

Recent rains in Brazil's Center-South region have become a focal point in the sugar market, potentially disrupting the current crushing season but benefiting the 2025/26 crop. This weather shift, along with the approach of the off-season, has supported sugar prices despite a turbulent macroeconomic backdrop. The week saw U.S. elections, a Fed rate cut, and a hike by Brazil’s Central Bank. Trump’s election drove U.S. Treasury yields higher, strengthening the dollar and raising concerns of reduced commodity demand, especially from China, where recession risks loom. While these factors could pressure commodities, sugar prices remain resilient due to steadily bullish fundamentals and seasonal constraints on supply, also taking advantage of Fed’s rate cut.

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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