Now, you must be wondering what this has to do with the sugar market or whether you got the wrong text to read. Yes, this is our weekly comment, and it should bring fresh news and valuable insights about the market. The link in this story is that recently there has been a lot of talk about the “sudden death” of the sugarcane fields, and my friend’s statement popped up in my unconscious. The current scenario of the sugarcane fields is, in fact, worrying. The record numbers of crushing compared to previous years can create a misconception, especially for those watching from afar, about the amount of sugarcane being endless and that new records will be broken. However, that won’t happen.
Many mills are already noticing some worsening in the sugarcane quality, which makes the process of sugar crystallization difficult. In some regions, the water deficit has already made some companies discontinue new sugar sales for export until they are sure they will be able to meet their production goals. The fact is that the sugar premium for shipment in the first quarter of 2025 has already gone up, and there is fear that we will face a long off-season.
The crushing numbers, which were around 605 million tons of sugarcane at first (including the forecast of Archer Consulting), are starting to be reviewed downward. Among the mill owners, the belief is that the crop will have a “sudden death”, that is, it will end way sooner than expected. The drop in sugarcane productivity, already visible in some totally dry areas, and the lack of adequate development of new sugarcane fields will certainly affect the next crop.
This scenario has gone unnoticed by the funds which added on more sales last week, reaching 63,000 sold contracts, but they quickly repurchased the position and today (Friday) according to COT (Commitment of Trades), were short by 46,000 lots based on last Tuesday’s position. We understand that the position of the funds is one of significant vulnerability for the market and can contribute to a possible price recovery.
New York closed out the week with October/2024 at 18.10 cents per pound, a drop of 44 points (almost 10 dollars per ton) against the previous Friday. The following maturities suffered average drops of 30 points. The slight appreciation of the Brazilian real against the dollar, closing out the week at R$5.4740, reduced the sugar values by R$70 per ton for the October and March average, R$57 per ton on the 2025/2026 crop average, and R$30 per ton on the 2026/2027 crop average.
The sugar market is in a stressful situation right now. Many attribute this situation to the dollar appreciation, which, when converted into Brazilian real, still shows an appealing remuneration per ton, even when the value in cents per pound has dropped. However, the exchange rate and the sugar haven’t shown correlation, except for a short period in April this year and in the second week in July. Other than that, the dollar argument doesn’t stand up.
In terms of exports, Brazil still stands out as a global leader, with an amazing record of 37.6 million tons exported in the accumulated of the last twelve months, reaching 122.6 million tons over the last four years. This performance is supported by the 2024 numbers, where up until July the sugar exports are 45% above the same period last year. This is a serious point of vulnerability. If on the average of the last years Brazil had a market share of 48% in the world export, now things have significantly changed. When you depend on the availability of a sole producer with percentage size of participation, the market will become sensitive to changes in the product availability with a huge impact on prices.
Compare what happened to cocoa this year. 65% of the world cocoa production depends on two countries in Western Africa (the Ivory Coast and Ghana). The drought, structural problems and low productivity made prices explode. I don’t mean that this will happen to sugar, but if sugar in Brazil comes down with the flu, the world market catches pneumonia. Dependency and vulnerability are just emerging.
Examining bullish and bearish factors, we identified several possibilities that can influence the market over the next months. Among the bullish factors, the intensification of the drought in the Center-South, a sugarcane crop below 600 million tons, the dollar devaluation against the currencies of emerging countries and improvement on ethanol market, which could reduce the production mix of sugar, stand out. Besides, a possible export restriction by India could also push prices up.
On the other hand, the bearish factors include the inventory building in the consumer countries, a sugarcane crop above 605 million tons, the increase in the short position by the investment funds, and a surplus in the world oil inventory. China’s economic growth below the expected and the risk for recession in the USA, which some financial institutions, such as JPMorgan, estimate at 25% for 2025, could also have some negative pressure on prices. Donald Trump’s reelection in the USA is another uncertainty factor that can impact the market.
It’s clear that the bullish factors are more likely than the bearish ones. Again, we believe that the market has already seen the lowest point, around 17.90 cents per pound. We estimate that the Brazilian real should appreciate against the dollar, getting back to the R$5.4000 levels before the end of the year, which together with other variables, can result in a potential for a high of 150 to 200 points at the end of this year.
Our collaborator Marcelo Moreira analyzing October/2024 sees as a first resistance in the moving average of 9 days, the 18.18 cents per pound level and the next ones at 19.04 and 19.37 cents per pound: the first relevant support at 17.54 cents per pound and then only at 16.60 cents per pound.
If you have gotten this far, you must be asking yourself, “And how about the long life?” Well, dear reader, this is for our cherished sugar market that has a huge potential for growth in the next years. If the 2025/2026 crop suffers a water deficit stemming from this current crop, get ready for higher prices – way higher.
You all have a good weekend.
Arnaldo Luiz Corrêa
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