Dec 16 / Lívea Coda

The bearish trader might take the wheel

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"Last week, sugar prices corrected due to various factors. Thailand began its crushing season on December 6th, producing 193kt of sugar in the first 7 days, with improved yields. However, on December 10th, the Chinese Agricultural Products Standards Office (AGDA) suspended imports of syrup, sugar blends, and sugar pre-mix powders from Thailand due to sanitary concerns."

The bearish trader might take the wheel

  • Sugar prices corrected last week due to various factors, including Thailand's improved sugar yields and production pace.

  • On December 10th, the Chinese Agricultural Products Standards Office (AGDA) suspended imports of syrup, sugar blends, and sugar pre-mix powders from Thailand due to sanitary concerns.

  • This suspension means about 1Mt of Thailand's sugar exports will need to find new markets.

  • China's harvest is showing exceptional results, reducing its need for imports, with a 53% increase in production by the end of November.

  • Indonesia is taking steps to become food self-sufficient by 2027, including a ban on sugar imports for consumption starting in 2025, while maintaining raw sugar imports at 3.4Mt.

Sugar prices corrected last week, driven by some interesting news. While key suppliers like India, as discussed in the previous report (link), saw their harvests pick up pace, others have just started showing healthy results. Thailand began its crushing on December 6th. In the first 7 days, the country produced 193kt of sugar from 2.7Mt of cane, which is 0.1% more than the first week of the 23/24 season. Yields have already improved from 64.8 kg of sugar per ton of cane last year to 70.8 kg/t this season. However, the most interesting news from that region isn't just about the good harvest pace.

Image 1:Raw sugar prices (Usc/lb)

Source: Refinitiv, Hedgepoint

It's well known and discussed in the market that Thailand is expected to recover. However, on Tuesday, December 10, the Chinese Agricultural Products Standards Office (AGDA) suspended imports of syrup, sugar blends, and sugar pre-mix powders from Thailand due to sanitary concerns. Before China can confirm, evaluate, and eliminate potential food safety risks from these companies (like excess microorganisms, adulteration, or mixing of powders), they will suspend customs declarations and imports of these sugar products.

Image 2: Sugar Balance - Thailand (Mt Dec-Nov)

Source: Thai Sugar Millers, Sugarzone, Hedgepoint

This means that out of the 2.3Mt of additional sugar available from Thailand, which exports is expected to increase from 5.3Mt to 7.7Mt, about 1Mt is being displaced. Last season, China imported 2.1Mt of syrup, sugar blends, and sugar pre-mix powders, which is equivalent to about 1.6Mt of sugar.

This extra sugar will need to find a market elsewhere, even because China's harvest is in full swing and showing exceptional results. By the end of November, China produced 1.37Mt, a 53% increase, compared to last year, boosting expectations of over 11Mt in sugar production and reducing the need for imports. In October, China imported only 540kt, compared to 920kt last year.

This news, combined with a bearish Unica report, pushed prices below the 21 c/lb support, and it wouldn't be surprising to see funds switching to a short net position in the next CFTC report. Although we still see some deficit for Q1/25, higher production from Center-South and sluggish demand might prevent further price advance.

Image 3: Total Imports - China ('000t - inc. Syrup and smuggling)

Source: CSA, Refinitiv, Green Pool, GSMM, Hedgepoint

The Unica report delivered an excellent result for the second fortnight of November. Although the month's total is still 1Mt below the 10-year average, with 36.8Mt compared to 37.8Mt, cumulative crushing has already surpassed the 600Mt mark. Our initial estimate was more optimistic than the market average at 610Mt, but this result surprised us, prompting a revision to 616.5Mt. This suggests that the market might be overly pessimistic with its 590Mt prediction for 25/26.

While it's still too early to make an accurate projection as we approach the beginning of summer, some factors such as the fires and drought of 2024 could impact productivity. However, given 24/25 results and reviewed expectations, it might be prudent to view them with some skepticism. Currently, we estimate 600Mt, but if summer rains are excellent, there is potential for an upside to at least 620Mt. This would make trade flows much less concerning. Some destinations might delay their purchases, waiting to see if prices correct further, which could ease the Q1/25 deficit by postponing demand.

Image 4: Bi-weekly sugarcane harvested at Center-South mills (M ton)

Source: UNICA, Hedgepoint

Indonesia is taking steps to become food self-sufficient by 2027, including banning the import of sugar for consumption starting in 2025, which total amount is unclear. However, the country is likely to continue importing 3.4Mt of raw sugar. Typically, Indonesia imports about 5Mt of sugar, with 95% being raw sugar and the rest white sugar. Most of Indonesia's raw sugar imports come from Brazil. This year, Indonesia might wait for the next Brazilian season before allowing more import quotas, depending on their stock levels. A government official said that in 2024, Indonesia is expected to produce 2.4 million tons of sugar, and in 2025, this will increase to 2.6 million tons, reducing their need for imports.

Image 4: Speculative net position (Thousand lots)

Source: CFTC, Hedgepoint

In Summary

Last week, sugar prices corrected due to various factors. Thailand began its crushing season on December 6th, producing 193kt of sugar in the first 7 days, with improved yields. However, on December 10th, the Chinese Agricultural Products Standards Office (AGDA) suspended imports of syrup, sugar blends, and sugar pre-mix powders from Thailand due to sanitary concerns. This means about 1Mt of Thailand's additional sugar exports will need to find new markets. Meanwhile, China's harvest is showing exceptional results, reducing its need for imports. This news, combined with a bearish Unica report, pushed prices below the 21 c/lb support. Indonesia's steps towards food self-sufficiency by 2027, including a ban on sugar imports for consumption starting in 2025, also contribute to the market dynamics during the week.

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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