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Weekly: ICE sugar futures rally prospect linked to Brazil output, weather forecast

21 May 2022 3:12 pm
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Mumbai, 21 May (Commoditiescontrol): ICE raw sugar futures hit one-month high this week, before retracing yet moderately higher, as prospect of top producer Brazil diverting more cane crushing toward ethanol output this season at the expense of sugar, thus curbing sugar supplies.

July raw sugar settled up 0.18 cents, or 0.9 percent, at 19.95 cents per lb. The sweetner scaled a one-month high of 20.24 cents on Tuesday on fears of a frost in Brazil. August white sugar rose $6.30, or 1.1 percent, to $558.10 a tonne.

Dealers said so long as uncertainty over Brazilian production levels remain, sugar should stay supported. Light frosts were reported in several Brazilian states on Friday, including sugarcane producing areas.

Strength in the Brazilian real supported gains in sugar Friday after the real climbed to a 3-1/2 week high against the dollar. The stronger real discourages export selling from Brazil sugar producers.

Bullish Factor

Sugar production in the key Center-South Brazil region is expected to total 1,67 million mt in the first half of May, a decrease of 30.1 percent on the year, according to the S&P Global Commodity Insights survey of 11 analysts showed May 20.

Weather in the Center-South was favorable for crushing during H1 May, with less than one day expected lost to rain and about 235-245 mills active as of May 16.

The proportion of cane used for sugar production is expected to be 40.9 percent, down from 46.0 percent a year earlier. Brazilian producers were expected to take advantage of the recent high price of ethanol during the early stages of the harvest, but long-term expectations are for mills to maximize their sugar production during the second half of the harvest.

Recoverable sugar per ton of sugar cane, or ATR, is expected to be 122.3 kg/mt, a decrease of 7 percent on the year. Total ethanol output from sugar cane is expected to be 1.58 billion liters, down 14.2 percent on the year.

Strength in crude oil is also bullish for sugar prices as crude rallied more than 1 percent Friday. Higher crude prices benefit ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.

Sugar is also being supported by rising grains and fertiliser prices.

Bearish Factor

Weighing on prices are rising Indian exports. Indian mills have so far signed contracts to export 8.5 million tonnes of sugar in 2021/22.

Ramped-up sugar output in India is bearish for prices after data from the Indian Sugar Mills Association (ISMA) reported that India's 2021/22 sugar production during Oct 1-May 15 rose 14.4 percent on year to 34.88 MMT.

The outlook for bigger global sugar supplies is negative for prices. Green Pool Commodity Specialists on April 29 shifted its projection for the 2022/23 global sugar market to be in surplus by 1.41 MMT versus a January forecast of a 742,000 MT deficit.

A bearish factor for sugar was the projection from Conab on April 27 for Brazil 2022/23 sugar production to increase by 15 percent on year to 40.3 MMT as the crop recovers from the past season's adverse weather. Also, the USDA's FAS on April 22 projected Brazil's 2022/23 sugar production would climb 2.9 percent on year to 36.37 MMT and that 2022/23 Brazil sugar exports would increase by 3.7 percent on year to 26.6 MMT. In the shorter term, however, Unica reported last Thursday that Brazil's 2022/23 Center-South sugar production through April fell 50.6 percent on year to 1.066 MMT.

The outlook for larger sugar crop sizes in India and Thailand is bearish for sugar prices. On April 15, the ISMA raised India's 2021/22 sugar production estimate to 35 MMT from 33.3 MMT, up 12.2 percent on year, and said sugar exports would jump to a record 9 MMT. India is the world's second-largest sugar producer.

Meanwhile, the Thailand Office of the Cane & Sugar Board reported on March 22 that Thailand's 2021/22 sugar production from Dec 7-Mar 19 was at 9.6 MMT, and the total Thailand 2021/222 sugar harvest Dec 7-Mar 31 may reach 10 MMT, a 3-year high. As a result, the Thailand Office of the Cane & Sugar Board expects Thailand to export 7 MMT of sugar this (2021/22) marketing year. Thailand is the world's second-largest sugar exporter.

World sugar production in 2021/22 (Oct/Sep) will climb 1 percent on year to 170.500 MMT from 170.335 MMT in 2020/21 (ISO). The world sugar deficit in 2021/22 will shrink to a 1.93 MMT deficit from a 2.29 MMT deficit in 2020/21 (ISO).

Sugar production from India, the world's second-largest sugar producer, will climb 13 percent on year to 31 MMT in 2020/21 due to a good monsoon season (India Sugar Mills Association). Weather concerns in Brazil are a major bullish factor for sugar prices, with Brazil having experienced its worst drought in 100 years and as several bouts of frost in Brazil have damaged some sugar cane crops.

July raw sugar #11 futures will find support at 19.75 cents and meets resistance at 20.12 cents in the immediate term.

(By Commoditiescontrol Bureau: +91-22-40015505)

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