Global sugar prices find momentum amid severe drought in Brazil.
World-market sugar prices experienced a significant revival after main raw sugar suppliers either reduced their outlook or dampened export projections, impacting global tradeflows across the globe. Raw sugar availability seems to be under pressure, especially in the upcoming six months. With another tight sugar balance, the global picture painted is in line with last year.
The world-market prices have been rising sharply in the past two months. The main price indicator for raw sugar, New York #11, has recorded a 25% price hike since mid-September.
Brazil traditionally is the world’s largest supplier of sugar. With no. 2 India having announced that it will not export any sugar to the world market for the time being, developments in Brazil once again decide the direction of world-market prices.
The main underlying reason that explains this price hike is that Brazil is suffering from the worst drought on record since the country started measuring these statistics in the 1950’s. For sugar, this will have its effects on both the current and the upcoming cane crop.
In the short-term, the lack of rainfall has resulted in forest fires impacting some of the most important producing states. Several producers have warned that up to 10% of sugar cane fields have been burned in some cases, thus significantly impacting the current cane crop.
Next to that, the dry spells affect the sugar quality of this year’s crop. There are even more severe implications expected for the 2025/26 season. As cane plants typically last for five to six years, sprouting again after being cut and then growing for another harvest the following year, it is not uncommon that dry spells are even more detrimental to the following year’s crop. For Brazil, this most recently was the case in 2021 after a very dry spell in 2020.
As a result, a raw sugar deficit is likely to materialise for at least Q4 2024 and Q1 2025. The speculative funds support this view, having moved from a net short to a net long position. This means that the market sees positive price developments looking forward towards Q1 2025.
EU MARKET
Tight market situation puts European sugar market under pressure.
In contrast to the world market, the European sugar market is experiencing an increasingly tighter supply and demand balance. Positive crop developments during summer in combination with high opening stocks last year have resulted in lower imports and growing exports. This “balancing act” has put European market prices under pressure across the continent. For the new season ahead, lowered beet prices and subsequent reduced sowings seem very likely. These first signals could pave the way for more positive sentiment throughout Europe’s main producing regions in the upcoming season.
After beet sowings were late again for the second year in a row, positive weather conditions in the “beet belt” during summer have partly offset initial struggles for beet growers. After both Germany and France adjusted their output estimates upwards, the EU Commission eventually followed suit in their balance sheet. The increased European production outlook now nears the five-year average.
As a result, the high imports last season have been replaced by post-quota low import levels. In contrast, exports are sharply up as producers have been aiming to reduce their inventory levels. These developments taken together have had a pressuring effect on European market prices throughout 2024. With EU sugar prices moving closer to export parity instead of the usual import parity levels, margins now have become thin for many EU sugar manufacturers.
On the flipside, the offloading of sugar stocks has simultaneously resulted in a “clean slate” for the new marketing year that has started October 1st, with beginning stocks now back at levels around the five-year average. With Ukraine limited in its export capabilities towards the European Union in 2025, less disruption on this front is expected next season.
Looking further ahead, several EU sugar manufacturers either already announced that lower beet prices will be paid to growers as of next season or have made their intentions public to follow suit. This will most likely result in lower sowings during the upcoming spring. Initial projections amount to at least a 5% reduction in EU beet acreage. This could give some relief to the EU supply and demand balance, creating upward potential for European sugar prices to move back to more sustainable levels.
