Sugar expected to see some correction after price surge

GLOBAL sugar prices have reached a 12-year high, surging over 35 per cent year-to -date. The sugar markets are ablaze, with the strength undeniably driven by deficient physical markets. Sugar prices also received support after the International Sugar Organization on Oct 23 forecast that the 2023 global sugar production has depleted by 1.2 per cent this year, while the shortfall projections for 2024 stand at 2.1 per cent.

According to recent estimates from the Thai Sugar Millers Corporation, sugar production in Thailand is expected to decrease this season due to drought conditions linked to the El Nino weather phenomenon, which caused significant damage to the cane plantations. As a measure to combat inflation and safeguard domestic food security, the Thai government has categorised sugar as a controlled commodity, thereby requiring a regulatory panel to approve the country’s sugar exports. Thailand is the third-largest sugar producer in the world and the second-largest sugar exporter after Brazil but is currently facing widespread drought conditions that are expected to persist until early 2024, as warned by the authorities.

This announcement came one day after the Indian Sugar Mills Association lowered its sugar output forecasts for the upcoming season. Global sugar prices are buoyant amid concerns that inadequate rainfall in India has severely depleted water reservoirs, suggesting that the next crop cycle could be even worse than the current one. It is anticipated that India will not export any sugar for the recently commenced season. Consequently, sugar markets are looking at the prospect of a reduced harvest in the November crushing period, putting the surge in global prices in the spotlight.

El Nino is suppressing harvests, and we are witnessing consecutive years of deficit in physical sugar markets. Additionally, persistent shipping bottlenecks exacerbated by the geopolitical crisis in the Middle East could propel sugar markets towards the historic peaks witnessed in 2010-2011, when the prices of commodities reached 30-year highs. Meanwhile, adverse weather conditions continue to hinder sugar production in both Thailand and India, providing a strong undercurrent to the global sugar price surge. The anticipated decline in output from these two major sugar-producing nations will further tighten the global market balance, supporting prices that are already near their highest level in 12 years.

This situation places the market’s dependence on Brazil, which is currently facing its own set of challenges. Record crops are being stymied by bottlenecks at ports, rendering prices extremely sensitive to additional issues like the untimely rains that threaten to disrupt harvests. To make matters worse, Brazilian logistics issues are keeping the world undersupplied, with large quantities of sugar stuck in ports as the country’s infrastructure is pushed to its maximum capacity.

On the upside, any further dent in global supplies could give the sweetener, an ingredient in almost every food preparation and a key biofuel, a shot towards the high of 2011. However, technically, a long-term trend line (red) seems to coincide with a short-term upward trend line (grey) somewhere around levels of US$30, which will pose a vital resistance and should be tested before the breach. The peak of US$28.14 on Nov 7 suggests that the market is entering overbought territory and some correction may be expected around these levels. Should there be a pullback, a support zone could be established at the 50-day moving average of US$26.80 and the 100-day moving average of US$25.40.

Tags: Brazil, sugar, crop forecast