Sugar and Ethanol Daily Report

By: StoneX Intelligence Brazil, StoneX Intelligence Brazil

Fri, 17 May 2024, 07:40

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Analysis of the recent movement of sugar #11

Filipi Cardoso

filipi.cardoso@stonex.com

Marcelo Di Bonifacio Filho

marcelo.bonifacio@stonex.com

Rafael Borges

rafael.borges@stonex.com

Sugar | Prospects of increased supply put pressure on prices

Raw sugar prices, traded on the New York exchange (ICE-US), have been in a strong downtrend since the beginning of April/24. With the start of the 2024/25 crop (Apr-Mar) in the Brazilian Center-South and expectations of a surplus in the commodity's global balance, sugar has been under constant downward pressure related mainly to the fundamentals of more abundant supply, mainly due to high Brazilian exports.

In this context, from the beginning of April 2024 to this writing ( May 16), the raw sugar contract #11 expiring in July/24 (SBN4) has already fallen by 17.9%, consolidating a 10% drop since the beginning of 2024 and resulting in the lowest price since March/23 for the contract (US¢ 18.33/lb).

Raw sugar prices #11 - SBN4 (US¢/lb)

Source: ICE-US. Design: StoneX.

In addition to the more bearish fundamentals related to the high supply in the Brazilian Center-South, the market has also been influenced by prospects for surpluses in the global sugar balance for the global crops 2023/24 (Oct-Sept) and 2024/25 (Oct-Sept). The main reason for this has been, especially in the current crop, the large production and export of Brazilian sugar, which outweighed the El Niño-related falls in Southeast Asia in 2023/24 (Oct-Sept), expected at 3% and 20.7% in India and Thailand, respectively.

Adding the two Asian countries together, the estimated drop in the global 2023/24 cycle is 3.3 MMT, while according to StoneX's estimate, production growth in the Brazilian Center-South over the same period is expected to be 4.5 MMT.

For the next global crop of 2024/25 (Oct-Sept), the outlook is for a smaller surplus due to lower production in the Center-South, but still present, given the recovery of players previously affected by El Niño, such as Thailand, which could see an increase of up to 2 MMT due to increased area and productivity gains.

Global sugar balance (MMT) and stocks/demand ratio (%)

*Estimate and Source: StoneX.

Therefore, the bearish sentiment has made itself clearer to the market, explaining the bearish channel since the beginning of April/24. It is evident that the market is still surrounded by uncertainties, one of the main ones being the performance of the 2024/25 season (Apr-Mar) in the Brazilian Center-South. Between November/23 and March/24, an important period in the crop's development, rainfall was 26.2% below the 10-year average for the period in the sugarcane-growing regions, raising concerns about the crop's production.

However, the first two weeks of the crop have been optimistic for production. Amid the drier weather and the higher productivity inherited from the 2023/24 cycle, last Wednesday (15) UNICA announced a production of 1.84 million tonnes of sugar for the second half of April/24, 65% above the previous year, which further contributed to the drop in sugar seen this week.

As such, in the absence of indications confirming an effect of the drought in the Brazilian Center-South, with sugar production expected for the 2024/25 crop at 42.3 MMT by StoneX, a drop of only 0.2% due to the higher mix and quality of the feedstock (TRS), with the crops in the Northern Hemisphere practically over, sugar should continue to come under pressure in the short/medium term.

INDICATORS

Sources: ICE, CEPEA, B3, ANP, NYMEX, CBOT, Central Bank of Brazil, California Air Resources Board (CARB), CONSECANA, StoneX. Design: StoneX.

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