Sugar prices fall to 3-year low on good weather in Brazil and India's decision to boost exports

Stock market prices for sugar fell to a 3-year low on January 21 amid the decision of India, the world's second-largest sugar producer, to allow exports of 1 million tons of the product until the end of September to support local sugar factories and domestic prices, which have recently been under severe pressure.

Rumors of allowing exports have been circulating for weeks, but the decision surprised some traders as India's sugar production this season will be lower than consumption for the first time in eight years. Sugar production is expected to fall from 32 million tonnes to 27 million tonnes last year, while consumption is expected to reach 29 million tonnes.

During January, March futures for white sugar No. 5 on the London Stock Exchange fell by 8.4% to $466/t (-10% per month, -29% per year), and for cane sugar No. 11 – by 7.6% to $17.8/lb or $392/t (-11% per month, -33.5% per year) against the backdrop of improving weather in Brazil.

Prices are also under pressure from forecasts of increased sugar exports from Thailand after the suspension of syrup exports to China. According to estimates by the Cane and Sugar Board of Thailand, in the 2024/25 MY sugar production in the country will increase by 18% compared to the previous year from 8.77 to 10.35 million tons. Thailand is the third largest producer and second largest exporter of sugar in the world.

According to the weekly Commitment of Traders (COT) report, during January 8-14, funds increased their net short position in sugar in New York by 47,005 contracts to a 5-year high of 106,045 contracts, and in London by 9,627 contracts to a 5-year high of 121,425 contracts. The very short price position of funds in sugar futures could lead to a price rally.

Heavy rainfall in Brazil over the past 4 months is improving harvest prospects for all crops, including sugarcane, which will allow for increased sugar production. Although, with sugar prices falling, processors may increase their conversion of sugarcane into ethanol.

In a report released on November 21, the US IAEA forecast that in the 2024/25 MY, global sugar production will increase by 1.5% compared to the previous season to a record 186.619 million tons, and consumption will increase by 1.2% to a record 179.63 million tons, while ending sugar stocks will decrease by 6.1% to 45.427 million tons.

After the European Union reinstated duties on sugar supplies from Ukraine due to exceeding the quota (which will be in effect from July 2, 2024 to June 5, 2025), sugar prices in Ukraine remain at a low level of 23-24 UAH/kg, despite the increase in the dollar exchange rate.