July NY world sugar #11 (SBN23) on Wednesday closed up +0.03 (+0.12%), and Aug London white sugar #5 (SWQ23) closed down -6.00 (-0.87%).
Sugar prices Wednesday fell to 1-week lows but settled mixed. Weakness in the dollar Wednesday sparked short covering in NY sugar as prices recovered from early losses and settled slightly higher. Sugar prices are under pressure on farmer hedge selling ahead of the upcoming Brazil sugar harvest. Conab on Apr 26 forecasted that Brazil's 2023/24 sugar output would climb +4.7% y/y to 38.8 MMT, the second most ever, as crops recover from the previous season's adverse weather.
Another bearish factor for sugar is this week's plunge in crude prices. Crude (CLM23) fell by more than -4% Wednesday to a 5-week low. Weaker crude prices undercut ethanol prices and may prompt the world's sugar mills to divert more cane crushing toward sugar production than ethanol, thus boosting sugar supplies.
Last Thursday, sugar extended its six-week rally to 11-year highs. Sugar prices rallied on speculation that lower-than-expected sugar production in India will prompt the government to curb sugar exports. Last Wednesday, the Indian Sugar Mills Association (ISMA) cut its 2022/23 India sugar production estimate to 32.8 MMT from a Jan estimate of 34 MMT. India's Food Secretary said India might not allow additional sugar exports this year due to lower-than-expected sugar production. India has allowed only 6 MMT of sugar exports in 2022/23 after permitting 11.2 MMT in 2021/22, down -46% y/y. The ISMA on Jan 31 cut its India 2022/23 sugar export estimate to 6.1 MMT from an Oct forecast of 9 MMT. Also, the ISMA said that it sees India's sugar mills diverting 4.5-5.0 MMT of sugar to ethanol production in 2022/23. India is the world's second-largest sugar producer.
Sugar prices have rallied sharply over the past six weeks on tighter global sugar supplies. The International Sugar Organization (ISO) on Feb 24 raised its 2021/22 global sugar deficit estimate to -2.25 MMT from a November estimate of -1.67 MMT and cut its 2022/23 global sugar surplus estimate to 4.15 MMT from 6.19 MMT. However, the ISO still projects that global 2022/23 sugar production will climb +4.8% y/y to a record high of 180.4 MMT. Tropical Research Services on Mar 28 cut its 2022/23 global sugar surplus estimate to 1.6 MMT from a previous estimate of 4.5 MMT.
Reduced sugar production in Europe is a supportive factor for sugar prices. The European Association of Sugar Manufacturers on Dec 8 forecasted that EU 2022/23 sugar output would fall -7% y/y to 15.5 MMT.
Sugar has support from concerns that changing weather patterns could undercut global sugar production. The U.S. Climate Prediction Center on Apr 20 raised the likelihood of an El Nino weather pattern emerging between August and October to 74% from 61% a month ago. If that El Nino pattern occurs, it could bring heavy rains to Brazil and drought to India, negatively impacting sugar crop production. The last time El Nino brought dryness to sugar crops in Asia was in 2015 and 2016, which caused prices to soar.
On the bearish side, Conab on Apr 20 projected Brazil's 2022/23 sugar production would climb +6% y/y to 37 MMT. On Apr 17, S&P Global Commodity Insights projected that the 2023/24 global sugar surplus would climb to +4.5 MMT from a 2022/23 global sugar surplus of 600,000 MT.
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