TEN THINGS THAT CAN AFFECT THE SUGAR MARKET
Whenever I travel for work, I like to browse through airport libraries for new books. Something that draws my attention is the pretty suggestive titles of books that summarize any subject in number of tips or steps. “10 Tips to Turn into a Millionaire before 30 (even if you’re 40)”, “Practical Guide to Keep your Cool in Awfully Boring Meetings”, “50 Ways to Look Smart without Opening your Mouth”, “The Definite Guide to Lose Weight Eating Pizza”. While waiting for a delayed flight in the boarding lounge, which is always an awfully boring place, it’s healthy for our mind to look for something better to do than watch people complaining about the delay.
So, I came up with the idea of writing about the 10 things that can affect the sugar market right now. By virtue of the title, it seems that there are only 10 things. There must be a lot more, but the important thing is not to get off the proposed context.
Global Economic Recovery: Price Increase – With the global economic recovery, the demand for sugar tends to increase. Emerging countries, especially in Asia, are going through a speedy recovery, which can lead to an increase in sugar consumption. As economies strengthen, the demand for food and sweetened beverages tend to increase, pushing prices up. After all, who doesn’t like some sweet dessert after a long working day? We have commented here that world consumption increase will come out of Asia (India, Pakistan, Indonesia) and at a rate of 1.2% per year; our estimate is that India might stop being a sugar exporter soon.
Climate Problems in Brazil: The Impact of the Dry Weather – The climate is always a great factor on the sugar market. And the climate is upside down. Brazil, the greatest world sugar producer, has been facing adverse climate conditions. The long drought has been affecting productivity of the sugarcane farms, resulting in smaller crops. This reduction in supply can lead to a price increase since sugar availability decreases. And there is nothing like a little climate drama to spice the markets up.
Decrease in India’s Production: Exports at Risk – India, another great sugar producer, is also facing production challenges. Problems with the delay in the monsoons and the government policy of internal price support can reduce exports. Less sugar on the global market means higher prices. If it’s true, as some analysts say, that India has a carry out of 9 million tons of sugar, something wrong has happened to the determination of this huge volume. Since it’s made up of initial inventory plus production minus internal consumption minus exports and minus what has been diverted to ethanol production for us to come to a stock of 9 million tons, chances are that the mistake is in production or consumption.
China’s Interest in Buying: China, great sugar consumer, has shown growing interest in increasing its reserves. The Chinese buying interest provides a security level for prices. If the Chinese demand stays strong, this might support prices at high levels, regardless of other factors. It’s almost as if China were saying, “Don’t worry. We are here to guarantee prices won’t fall much.”, but I don’t believe that is the case.
Innovations in Biofuel Production: Diversification of Sugarcane Use – The increasing demand and ethanol price recovery is influencing the sugar market. With more sugarcane being diverted to ethanol production, sugar supply might decrease. This diversification of sugarcane use creates further pressure on sugar prices.
Overproduction in Thailand: Excessive Supply – Thailand, one of the greatest sugar exporters, is forecasting a record crop this year. The overproduction can lead to an excessive supply on the global market, pressuring prices down. Imagine a sugar tsunami flooding the market – prices have nowhere to go but down.
Increase in Indian Exports: Market Competition – Though the Indian production might face challenges, the government policies pushing for exports can increase the supply on the global market. If the Indian exports occur, that might add bearish pressure on prices. Right now, we don’t believe that sugar exports on the part of India can occur.
Drop in Demand for Processed Food: Alternative Sweeteners – The increasing awareness over health and the change in consumers’ preferences to alternative sweeteners are impacting the demand for sugar. If this trend continues, the demand for sugar can decrease, driving prices to fall. It seems that sugar is facing a fierce competition from its healthier cousins. That’s a debatable point, because the HFCS (corn syrup) isn’t healthy anymore, but it is certainly a strong sugar competitor in the soft drink industry.
Dollar Strength: Higher Relative Prices – The appreciation of the American dollar makes commodities denominated in dollar, such as sugar, more expensive for foreign buyers. That can reduce the international demand and pressure prices down. A strong dollar can be good for American tourists, but not that good for sugar producers.
Technological Advances in Agriculture: Efficiency Improvement – The adoption of new agricultural technologies, with more productive sugarcane varieties and more efficient agricultural practices, can increase sugar global production. If supply keeps growing due to these advancements, prices might go down.
—
The sugar futures market in NY closed out Friday with October/2024 at 18.48 cents per pound, a 19-point drop in the weekly accumulated (a little more than 4 dollars per ton). Last week, I dared say that we had already seen the lowest market price of the year. I was wrong. The market couldn’t care less about my predictions, broke the year’s low of 17.95 cents per pound, and premiered new lows: 17.86 cents per pound; now we know why.
The funds surprised the market and according to the data published this Friday, the COT (Commitment of Trades), showed that the speculative funds are short by more than 45,000 lots and this turnaround has clearly contributed to the drop in quotations in NY, helped – of course – by the weak Brazilian real against the dollar, which closed out the week at R$5.6668, a 1.21% drop against last week.
This is what our technical analyst Marcelo Moreira has to say about the sugar market: October/2024 tested and respected the floor of the Bollinger band of the 50 days at 17.70 cents per pound. It traded at the 17.86 cents per pound low, reversed by trading at the week’s high at 18.74 and closed out at 18.42 cents per pound. The support is still at 17.70 cents per pound and the resistances are at 18.67/19.08/19.83 cents per pound. July/2025 broke the floor of the Bollinger band of the 50 days (trading at the week’s low at 17.25 cents per pound) and closed out the week at 17.56 cents per pound. The next support is still the floor of the Bollinger band of the 50 days at 17.52 cents per pound and the next resistances are at 17.94 and 18.38 cents per pound.
To read the previous episodes of World Sugar Market – Weekly Comment, click here
To get in touch with Mr. Arnaldo, write on arnaldo@archerconsulting.com.br
To read more about the news about the sugar industry, continue reading Chinimandi.com.
