Sugar prices have rallied amid tight ‘fundamentals’ around the globe. Rabobank associate analyst Pia Piggott provides an outlook for the sugar market.
Sugar production estimates for the first half of 2023 have been revised down in many countries, including in the large production regions of India, China, Thailand, the EU and Mexico. This has left global markets with an estimated surplus of less than one million metric tons for 2022/23.
With supply tightening elsewhere, the sugar price outlook is now more sensitive to the progress of Brazil’s harvest. A good recovery in the Brazilian cane crop, together with a high sugar mix, is also very much expected in the market.
However, there is also risk to the prospects of the Brazilian crop. High levels of rainfall over the rainy season usually correlate to higher crop volumes, and rainfall was certainly plentiful in Brazil’s most recent rainy season, which still lingers to some extent.
These rains will prevent large Brazilian sugar harvest volumes for the time being, although the expectation is for this to improve.
Whether the country’s sugar exports will flow normally is an entirely different matter.
This season Brazil is also producing record volumes of corn and soybeans, so competition for transport and port infrastructure will be intense. However, unlike previous bumper seasons, this year’s expected large sugar harvest has been telegraphed well in advance, giving traders enough time to make bookings.
The prospect of an El Nino weather pattern is also heightening fears of adverse growing conditions, with not enough rainfall, for sugar crops over much of India, South-East Asia and Australia.
However, even if El Nino is confirmed by the middle of the typical monsoon season in India and Thailand, it may be too weak to have an immediate effect. And the availability of irrigation for crops in India means that the effects of a deficient monsoon season are usually more felt in the following year’s crop.
The potential for adverse weather conditions related to El Nino have built a weather premium in the market that should evaporate if El Nino fails to materialise.
In Australia, sugar cane growers are also taking advantage of the weak Australian dollar, which is further supporting prices.
Rabobank’s economic outlook forecasts the Australian dollar will remain weak into 2023, in the mid-to-high USc 60s range, helping keep local sugar prices favourable.
This article first appeared in the June/July 2023 edition of Food & Drink Business magazine.
