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Global sugar prices have dropped to an 18-month low due to expectations of higher production in key regions. Brazil’s substantial output, despite a slight decline, and Thailand’s strong recovery contribute to this trend. Market sentiment remains cautious as buyers await lower prices. The World Bank and BMI forecast further price declines and modest growth in global consumption.

Highlights

Price Trends: Global sugar prices are under pressure, with raw sugar prices dropping to an 18-month low of 18.81 cents per pound. This price level has been consistent since mid-May, reflecting market expectations of higher production in the coming seasons.

Brazil’s Production: Despite a marginal decline projected for Brazil's 2024-25 domestic sugar production, the output is expected to remain substantial at 41 million tonnes, surpassing historical averages. This high production level contributes significantly to global supply.

Thailand and India: Thailand is expected to see a robust recovery in sugar production with a 16.4% year-on-year increase to 10.2 million tonnes after an El Niño-affected season. India's production is also set to rise slightly in 2024-25, though it will remain below historical trends.

Market Sentiment: According to Praful Vithalani, Chairman of AISTA, global sugar prices are declining due to fund houses taking short positions and buyers waiting for lower prices, indicating a cautious market sentiment among importing countries.

World Bank Outlook: The World Bank reported a 17% month-on-month decline in sugar prices in December 2023, which remained steady in the first quarter of 2024. This drop is attributed to increased production in Brazil and favorable dry weather conditions that expedited cane processing and exports.

Global Production Forecast: BMI has revised its global sugar production forecast for the 2023-24 season to 182.9 million tonnes, a 3.7% year-on-year increase. The 2024-25 season is projected to see a further 1.5% increase, reaching 185.7 million tonnes.

Production vs. Consumption: Global sugar production exceeded consumption by 2.7 million tonnes in 2022-23 and is expected to widen to 4.2 million tonnes in 2023-24. This surplus is projected to continue into the next season, according to AISTA Chairman Vithalani.

Brazil’s Crushing and Production: The UNICA report highlighted a significant year-on-year increase in sugarcane crushing in Brazil, with a 43.4% rise by April-end. Sugar production also saw a substantial 84.3% year-on-year increase in late April, with higher allocations of cane to sugar production.

Impact of Ethanol Prices: Low ethanol prices in Brazil have led to increased sugar production as mills opt for the more profitable sugar production. This has resulted in Brazil's sugar output rising from 38 million tonnes in 2022-23 to 45.5 million tonnes in 2023-24, with high levels expected next year.

El Niño Effects: The expected weakening of El Niño in the first half of 2024 should ease sugar supply constraints in India and Thailand, leading to anticipated price declines of 3% in 2024 and 8% in 2025, as projected by the World Bank.

Consumption Growth: BMI forecasts a modest growth in global sugar consumption, expecting it to rise to 178.8 million tonnes in the 2023-24 season and to 179.7 million tonnes in the 2024-25 season, reflecting a year-on-year growth of 0.5%.

Price Forecast Adjustment: In light of substantial downward pressure on sugar prices in Q2 2024, BMI has adjusted its price forecast for the average front-month ICE-listed sugar price in 2024 from 23.5 cents to 21 cents per pound, indicating a bearish outlook on prices.

Conclusion

The global sugar market is experiencing significant downward pressure on prices due to anticipated production increases in major producing countries like Brazil and Thailand. Despite slight declines in India and Thailand previously, overall production is projected to surpass consumption, leading to a surplus. This dynamic, coupled with cautious market sentiment and strategic positioning by fund houses, suggests that sugar prices will remain subdued in the near future. The easing of El Niño conditions further supports this outlook, indicating a potentially more stable supply and continued price moderation.

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