The spot value of sugar fell to a 3-month low of 18.30 cents per pound last Thursday 12th of May before staging a remarkable recovery through the next few days to peak at 20.24 c/lb on Tuesday night. This quick run up in value has coincided with a weak Aussie dollar which has been trading around 0.69-0.70 with the USD for the past couple of weeks. This in turn has yielded strong sugar prices for Australian producers as noted below.
The rebound in sugar’s value can be put down to a combination of macro-economic developments and fundamental news in the sugar market.
Centre South Brazil
Brazil has been the talking point of the sugar market for some time now. The harvest of the world’s largest sugarcane crop officially kicked off in April however many mills delayed commencement of crushing following wet weather in the first half of April. The late rain was welcomed after a patchy wet season that has produced large variability in cane quality through the first month of harvesting.
This variability has some analysts already writing down their expectations for the Brazilian crop from a largely consensus 565 million tonne forecast a few months ago to around 550 million tonnes or even less now.
Many market commentators also disagree on how much sugarcane will be used for sugar production vs ethanol in Brazil this year given the very strong price of oil which continues to trade north of $100 per barrel as war wages in Ukraine and Chinese covid lockdowns end, spurring Chinese oil demand. There are reports of several Brazilian mills washing out sugar sales contracts so they can use cane juice for ethanol production instead.
However, over the past week it has been the forecast for frosts affecting cane growing regions of Centre South Brazil which has brought enthusiasm back to the sugar market. The harsh impact of frost is fresh in the market’s mind after the 2021 season when multiple frost events and below average rainfall saw Brazilian sugarcane production fall to 525 million tonnes, the worst result in many years. No frosts of note materialised in Brazil this week despite forecasts which has seen prices ease slightly.
Until we get further into the Brazilian season the above variables will remain unquantifiable and market volatility will continue. Any reduction in Brazilian sugar production due to poor crop yield, improving oil prices or unfavourable weather would only spur the value of sugar higher.
Thailand is now in their inter-crop period with rainfall thus far tracking close to average. Long range forecasts for rainfall through the Thai wet season are slightly better than average. The last three seasons in Thailand have yielded the following cane tonnages: 75 million tonnes, 67 million tonnes and 92 million tonnes for the harvest just completed.
The Thai industry expects cane production to continue to improve in the next season to 100-120 million tonnes. The next harvest will commence in November 2022.
Indian producers are having the time of their lives! The harvest continues to crawl to the finish with 116 mills still crushing on the 15th of May up from 45 mills at the same time last year. Final sugar production now looks like cracking 36 million tonnes compared to pre-season estimates of 31 million tonnes. Sugar exports from this crop are now expected to reach 10 million tonnes by September 2022 with the Indian government looking set to limit at around this level.
The monsoon is expected to arrive in India in late May however could deliver below average rainfall due to the negative Indian Ocean Dipole which may emerge in coming months.
Dry conditions prevail across beet growing regions in the UK, France and Germany. The hot and dry conditions being experienced are already seeing wheat crops marked down however sugar beet which is a much hardier plant is holding up for now. Rainfall will be needed by the end of May to avoid mark downs to sugar beet crop estimates.