Market update summary
- The spot ICE11 raw sugar price rallied to a 12 year high of 27.62 cents per pound in mid-September on the back of dry weather conditions across India and Thailand. This is equivalent to almost AUD 950 per tonne.
- Future year sugar prices (2024-2026) have also rallied strongly in response to current global supply challenges (see above recent MSF pricing fill levels).
- The Oct-23 futures contract expired at the end of September with a record 2.87m tonnes of sugar delivered against the expiring contract.
- India has recorded a drier than average wet season and seems unlikely to allow any sugar exports from their upcoming crush commencing in October (see below global crop cycle calendar).
- Thailand’s sugar production is forecast to drop 25% compared to 2022/23 season due to dry conditions. This would reduce sugar exports and global supplies by around 2 million tonnes in 2024.
- Centre South Brazil is now approx. 80% through a record sugarcane crop of 610-620 million tonnes. This will produce 40+ million tonnes of sugar, also a record. The weather has been favourable with showers only now beginning to impact harvesting operations.
Centre South Brazil
Brazil is expected to have crushed approx. 490m tonnes of cane by 30 September or roughly 80% of the total crop of 610-620 million tonnes. Brazilian millers have used almost 50% of cane crushed to date for sugar production. This is the maximum possible sugar mix as many mills were built to produce ethanol only so cannot switch to sugar despite prices being significantly higher compared to ethanol. This could change in future years depending on the level of investment in new sugar production capacity by millers.
Brazil’s current crush is pumping out over 3 million tonnes of sugar per fortnight which will keep plenty of sugar available for global consumers until at least Q1 2024. As mentioned earlier a record 56,470 lots or 2.87 million tonnes of sugar was delivered against the expiry of the Oct-23 futures contract at the end of September.
Large physical deliveries against the expiration of futures contracts are usually seen as a bearish signal to the market, since traders delivering the product might not have had better deals to sell the sugar outside of the exchange.
India recorded its driest August on record this year (official records began in 1901). After a good start to the monsoon in July, rainfall in many cane areas faltered through August followed by some improvement in September. Annual totals remain below average.
Unofficial sources have reported the Indian government intends to ban sugar exports from the next crop commencing in October as dry conditions are expected to curtail production. India exported 6 million tonnes of sugar in 2022/23. Whilst the government is yet to confirm an export ban it would fit with the recent pattern of bans on the export of other ag commodities. With a federal election looming in 2024 the Indian government will be keen to avoid domestic food price inflation.
Thailand harvested 94 million tonnes of cane in 2022/23 season and produced over 11 million tonnes of sugar. Forecasts for the coming crop commencing at year end are for 65-75m tonnes of cane and ~9 million tonnes of sugar. Exports will therefore be at least 2 million tonnes lower in 2024 compared to 2023.
In north-eastern Thailand, the recorded rainfall for the first quarter of 2023 was the worst in at least 30 years. Dry weather has prompted farmers to switch to more drought tolerant crops like cassava, which is in high demand from China. Thailand’s many modern mills can collectively crush over 1m tonnes of cane per day, as such a number of mills are expected to commence on Jan 1 and crush a 2 month season given the low cane estimates.
China and Indonesia trade the title for the world’s largest importer of sugar annually. China’s imports this year have been below average due to high global sugar prices. The government seems to have allowed the draw down of strategic sugar reserves over recent months. This only kicks the can down the road as reserve stocks need to be replenished eventually. China is expected to re-enter the raw sugar market as prices retreat.
Most analysts foresee a global sugar supply deficit of between 1-5 million tonnes for 2023/24 due to the downgrading of crops across Asia. India and Thailand are expected to export a combined 8 million tonnes less in 2023/24 than they did in 22/23.
If Brazil can see out its current campaign without rain significant interruptions and standover, they will produce an extra 7 million tonnes compared to 2022. Attention then turns to the next Brazilian crop commencing in April 2024. Can Brazil sustain sugarcane production above 600 million tonnes next year and can they increase the percentage of cane used for sugar production above 50%? Given a favourable wet season many expect the answer to both questions is yes.