Sugar futures (SUGAR) on ICE are gaining after rolling over and extending the gains of the past two sessions, fueled by a surprisingly strong drop in production in key markets in Brazil. The agricultural association Unica reported yesterday that sugar production in the central-southern part of the country, in the second half of August, fell 6% year-on-year (although it had risen nearly 4% year-on-year through early August). The reason for this situation is the huge fires that have strained supply in key regions for Brazilian crops. In addition, the more than 2% rise in WTI crude oil yesterday put pressure on the market, favoring a massive covering of short positions in sugar.

  • As recently as Tuesday, contract prices were at 2-week lows, and deeper declines were further supported by a more than 5% drop in oil prices below $70 per barrel. Lower oil prices tend to result in lower ethanol prices and thus may prompt sugar mills to divert more sugarcane to sugar production instead of ethanol, thus increasing supply. 
  • The market had feared until recently that monsoon rains in India would lead to a bountiful harvest. The Indian Meteorological Department reported that India's rainfall in the current monsoon season up to September 5 was 8% higher than the long-term average at the end of the monsoon season.
  • As the monsoon season winds down, however, the market is slowly turning its attention to other factors, where some stress is being caused by Brazil. In late August, prices rose as drought and excessive heat caused massive fires that damaged crops in the Sao Paulo region. Cane producers group Orplana reported that up to 80,000 hectares of sugarcane crops in Sao Paulo had burned. In response to these estimates, Green Pool Commodity Specialists believes that up to 5 MMT of sugarcane may have been lost due to the fires.
  • Brazil's sugar production estimate for the 2024/25 season was lowered to 39.2 MMT from 40.0 MMT last Tuesday due to drought and fire damage. In addition, Covrig Analytics on Tuesday raised its estimate of the global sugar deficit for 2024/25 to -600,000 MT from an earlier estimate of -300,000 MT.
  • The International Sugar Organization (ISO) on August 30 estimated the global sugar deficit for 2024/25 at -3.58 MMT, much larger than the estimated -200,000 MT for 2023/24. The ISO estimated global sugar production for 2024/25 at 179.3 MMT. That's a -1.1% y/y decline compared the 2023/24 season.

Source: xStation5