Weekly Sugar Wrap for 22 April 2022

Since the beginning of April the sugar market has rallied to its highest level since 18^th November before falling back but remains within striking distance of making new five year highs. The Russian/Ukraine war remains top of the news. The conflict rumbles on with little change in the situation over the past three weeks. However, the long-term repercussions of the situation are being felt across the globe. Inflation was already rising rapidly but the threat of disruption to Ukrainian plantings/harvesting/shipments and Russian sanctions is exacerbating the situation. Crude prices remain above pre-war levels although well off the highs hit in early March. Despite increasing sugar production in India and other producers which may well have turned the predicted global production deficit for the current season into a small surplus prices remain above the long term average. There appear a couple of reasons for this strength. Firstly, buying raw commodities, including sugar, is seen as an inflation hedge. Chatter about a commodity super-cycle developing have become more muted but several banks are still talking commodity prices higher. JP Morgan being the latest to predict further 40% upside in commodity prices. Secondly, there is still considerable uncertainty over the next Brazilian CS cane harvest which officially started at the beginning of the month. A combination of high energy prices and a strengthening BRL could see more cane being used for ethanol production at the expense of sugar given the funds another reason to increase their net longs which they did in volume the week before Easter.

As mentioned the 2022/23 Brazilian CS harvest officially got underway at the beginning of April. Final figures for the 2021/22 season saw the amount of cane crushed at 523 million tonnes some 13.6% lower than the previous season while total sugar production just managed to creep over 32 million tonnes down 16.6% from the enormous and record production of 38.5 million tonnes last season. The well documented drought was the primary reason for the slump in cane. The rains did, eventually, return which has seen analysts increase their cane output to around 560 million tonnes for 2022/23. Much harder is predicting the amount of sugar to be produced. Currently, most analysts are not expecting any significant shift in the sugar/ethanol split from last season of 45/55 but time will tell if this is an accurate prediction. Early crush data often sees more cane going to ethanol so it will be several weeks before a clearer picture emerges especially as the crush is expected to get off to a slow start as mills give the cane as much time as possible to recover from the drought. Despite the BRL improving to its strongest level against the USD since March 2020 mills have already sold around 75% of their export sales of sugar for the season. Additionally, changes to ethanol import taxes and increasing ethanol production from corn suggests there will be no huge shift away from sugar. Nevertheless, most analysts are not expecting any huge rise in production with most expecting a modest 1-2 million tonne increase to around 63-64 million tonnes.

Estimates for Indian sugar production for the current season seemingly increase on a weekly basis at the moment. Pre-harvest most had pencilled in 31 million tonnes of sugar. However, it is now expected to hit 35 million tonnes with some even suggesting more. It will not be the first time analysts have been caught out when assessing Indian production but with production nearly 12% higher than original estimates has ruined many S&D calculations. The increasing production has seen chatter that the Indian government may restrict exports to 8 million tonnes fall away with over 9 million tonnes now thought likely. Assuming this year’s monsoon is average then there is no reason not to see another 33 million tonne production next season even with even more sugar going to ethanol production.

The Thai harvest is now, virtually, finished for 2021/22. Total crush has reached just shy of 92 million tonnes (38% higher than last season) with total sugar production reaching 10.02 million tonnes (up 33.7%). To the relief of most analysts their expectation for the Thai harvest were in line with final figures. Their attention now turns to next season’s potential. The weather, as always, will be crucial. Recent wet weather has been beneficial and, assuming, average rainfall over the next nine months then many expect a cane crop of just over 100 million tonnes resulting in 13 million tonnes of sugar.

Increasing production in other countries including Pakistan and sluggish demand has meant the current season is probably in surplus. Therefore, should prices be just shy of 20 cents? As explained above the funds seem keen to remain long of agricultural commodities. Prices had to rise to find Indian export sugar (no subsidies this season) and there is still great uncertainty over the Russian/Ukraine war. Add in the Brazil’s CS puzzle it is understandable prices are holding at current levels. Limited producer selling below 20 cents and under-priced end users suggests that prices may slip lower but perhaps gradually but any surge in crude prices is likely to see sugar follow suit.