Mumbai, 14 May (Commoditiescontrol): The future of Sugar prices are poised for some wild moves as weather forecast in the growing region remains anything but conducive.
The weather worries have already sent sugar prices to multi-year high last month and they continue to hover in that vicinity for the last couple of weeks, although some traders/speculators have decided to take money off the table.
On Friday, ICE July raw sugar settled up 0.2 cents, or 0.8%, at 26.22 cents per lb. For the week, the sweetener was down 10 cents. Similar pattern was observed in the case of London white futures.
London August white sugar rose 1% to $712.30 a tonne. Yet, it settled the week amid a loss of $3.40.
The recent strength in prices is attributable to stronger Brazilian Real and rise in crude oil prices. Higher crude prices benefit ethanol and may prompt the world's sugar mills to divert more cane crushing toward ethanol production than sugar, thus curbing sugar supplies.
Sugar prices are underpinned by tight supplies. However, Citi expects this quarter to see the price peak as a bumper 2023/24 crop from top producer Brazil becomes available. Overall, Citi sees prices averaging 22.90 cents this year, as the market stays in deficit for 2022/23 and likely 2023/24.
Meanwhile, as the Brazil sugar harvest gathers pace, in a bid to hedge their produce, the farmer will intensify selling sugar and as a result Sugar prices will come under pressure. A faster pace of the Brazil sugar harvest is bearish for prices. Trader Sucden said it sees limitations to the amount of sugar Brazil will be able to move during the peak months of the export season due to port congestion.
Another research firm - Unica reported Thursday that Brazil's 2023/24 sugar production through April was up 43.7% on year at 1.531 MMT. Also, the percentage of sugarcane crushed for sugar rose to 41.6% from 35.3% last year.
Friday's up move, as we know, was led by the concerns over changing weather patterns that could undercut global sugar production.
As per the U.S. Climate Prediction Center forecast, there is likelihood of an El Nino weather pattern emerging between August and October. The prediction now suggests 94% possibility as compared to last month's 75%.
If that El Nino pattern occurs, it could bring heavy rains to Brazil and drought to India, negatively impacting sugar crop production. The last time El Nino brought dryness to sugar crops in Asia was in 2015 and 2016, which caused prices to soar.
The outlook for a sugar surplus this year is negative for sugar prices. The International Sugar Organization (ISO) said last Thursday that it expects the global 2023/24 sugar surplus to fall to 2.1 MMT from a 4.15 MMT surplus in 2022/23.
ISO is projecting that global 2022/23 sugar production will climb 4.8% on year to a record high of 180.4 MMT. Larger sugar production is expected after Conab on Apr 26 forecast that Brazil's 2023/24 sugar output would climb 4.7% on year to 38.8 MMT, the second most ever, as crops recover from the previous season's adverse weather.
Elsewhere, China's Ministry of Agriculture halved its forecast for the country's sugar market deficit in 2023/24 from its previous estimate. Sugar production in the United States is expected to fall slightly in 2023/24 as beet sugar output is seen smaller.
Meanwhile, the speculators have raised their bullish bets in futures of raw sugar on ICE U.S. in the week to May 9, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Funds added 9,577 contracts to their net long position in raw sugar, taking it to 164,637 lots in the period.
We have maintained in our earlier reports about the possible continuation of uptrend in sugar price given the global supply uncertainty amid changing weather patterns. The latest weather forecast suggests that global supplies may be stressed from the hot climate, which could ultimately lead to the strengthening of prices.
For Monday, support for the July Sugar contract is at 26.02 cents and 25.81 cents, with resistance at 26.41 cents and 26.59 cents.
(By Commoditiescontrol Bureau: 09820130172)
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