S&D and Trade Flow Update - 2025 04 30

It has been a very volatile year, marked by significant macroeconomic changes. President Donald Trump’s “liberation day” has raised numerous questions about its potential impact on the global economy and supply chains. Sugar has not been immune to these effects and has since corrected sharply. The risk-off sentiment contributed to this movement, but the difficulty sugar has faced in recovering ground after a partial stability with the 90-day break and universal tariff (for countries other than China) is largely attributed to its own fundamentals.

Unlike other soft commodities such as coffee and cocoa, sugar’s availability is expected to be more comfortable. This trend is primarily due to healthy expectations regarding the Brazilian Center-South 25/26 results, especially following strong 24/25 final figures despite last year’s dryness and fires. The anticipation that the region might add to trade flows has prevented prices from recovering. This week, the expectation of a large May delivery has added to this bearish stance, with traders expecting close to 2Mt being delivered, mostly from the Center-South.

In the short term, demand has also contributed to the bearish outlook. Economic turmoil has left many destinations seemingly dormant. For instance, China has not taken advantage of an open import arbitrage, estimated for non-producing regions, a possible result of a higher domestic availability coupled with economic challenges.

However, some risks, though still rather weak, should not be overlooked. The Center-South region experienced adverse weather conditions between February and March, and the full impact remains uncertain. Additionally, final 24/25 results from India and Thailand in the Northern Hemisphere have fallen short of initial expectations, potentially limiting export availability for the next season (25/26). The prospect of a supply and demand balance deficit, heavily reliant on stocks - as the anticipated export of at least 700kt from India would reduce its stocks to levels similar to 22/23 - could be concerning in the long term, especially if there are any surprises affecting Brazil's 25/26 availability.

Therefore, monitoring the 25/26 crop development in the Northern Hemisphere is becoming increasingly important as we approach its key development window between June and August for most countries. Additionally, keeping an eye on the Center-South’s first results is essential. The first part of the season was heavily impacted by the 2024 drought, so the initial Unica reports are expected to show poorer results, potentially adding volatility to the market. Key indicators such as yields, and the Vegetation Health Index will be crucial in understanding the extent of the bearish trend.

A 5% growth in area also contributed to this result. Cane crushing reached 621.2Mt, with 40.2Mt of sugar being produced and exports hitting 31.8Mt, an incredibly healthy outcome. However, the 24/25 season experienced a lower sugar mix than mills aimed for, primarily due to poor raw material conditions, particularly a higher concentration of reducing sugars.

Looking ahead to the next season, February and March 2025 showed poor rainfall, reducing soil moisture and raising concerns among producers. Despite a decline in the Vegetation Health Index (VHI – estimated for CS based on NOAA’s state wise publication) during late February and early March, recent rainfall has improved cane health, pushing the VHI back above average and well above the theoretical stress level of 40. Over the past three consecutive weeks, the index has registered improvements for the entire CS region, suggesting that the dryness effects might not have been as severe as initially thought. Monitoring these aspects remains critical to understanding the next season's capacity.

Considering the weather’s latest adversity, our estimates have been revised marginally down from 630Mt to 621.2Mt. With a higher sugar mix expected in 25/26 (51% versus 48% in 24/25), production is anticipated to exceed 42.5Mt, contributing more than 33Mt to global trade flows. This high availability from the region is the main bearish factor affecting sugar prices.

With lower availability, domestic prices have risen by about 6% year-on-year. Additionally, the absence of elections in 2025 and cooler temperatures are expected to impact demand during the 24/25 season, reducing it from nearly 29Mt in 23/24 to 28.5Mt in 24/25. Approximately 1Mt is expected to be exported, with the Indian Sugar Mills Association (ISMA) recently announcing that the country will only use 700kt of its quota. This situation pressures stocks to levels similar to those in 22/23, the year before the export bans.

Therefore, India's current poor performance raises doubts about the possibility of exports in 25/26, even with a predicted recovery due to planting and expected favorable weather. We remain optimistic, estimating that nearly 600kt will leave the country in the next season, but we do not rule out the possibility of export bans.

Exports have also improved, growing by 48% compared to 23/24, not necessarily due to optimism regarding the 24/25 season results, which should be only 6% higher, but rather because of a higher ending stocks from 23/24, which allows the country to export more this current season.

In terms of expectations, Conadesuca’s estimates remain unchanged. Production is projected to reach nearly 5Mt, with exports around 1.2Mt.

Looking ahead to the 25/26 season, the USDA released its Prospective Planting report on March 31, indicating that sugar beet producers intend to plant 1.132 million acres, a 2.5% increase compared to 24/25. Therefore, if the weather cooperates, 25/26 might be even higher!

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