Simon Hood
Wilmar Manager Grower Marketing
The market axiom that “high prices cure high prices” has played out with our sugar market over the last month.
The breathtaking collapse of the ICE #11 sugar contract has been one for the record books! Combined with a rising AUD, this has resulted in the 2023 season AUD sugar swap price dropping from a record $950/t to a low $750/t. 2024 season prices are slightly less affected with a fall from a season high of $850/t to just under $700/t.
So, what happened? In simple terms a combination of fundamental news items resulted in cautious selling by the commercial sector, which triggered a technical selling spree from the speculators sitting on a stale long position.
The short-term supply outlook changed as Brazil continued to crush through the November rain and progress shipping at a higher than expected rate. The inverted futures market structure, March 24 higher than May 24, was built on the premise that a first quarter trade deficit existed as conditions precluded Brazil to harvest and ship their estimated record crop of up to 660M tonnes of cane.
The extended crush has pushed out the estimate for Brazilian sugar to over 42M tonnes which has eaten into the deficit for 23/24 season. Moreover, the rain has been welcome for Brazil’s 24/25 production estimate, lifting the forecast up to 43.5M tonnes and eroding the projected trade deficit for next year.
India added fuel to the fire via news the government was discouraging mills to produce ethanol in favour of sugar this season just started. In response to a reduced crop, largely due to a poor monsoon, the government is focusing on sugar production. It is anticipated that this will not result in Indian exports but there had been growing speculation that India would need to import sugar to meet domestic consumption needs.
In other production countries: Chinese production has been upgraded by about 1 million tonnes; similarly Europe, Ukraine and Russia forecasts have been upgraded as beet production has been favourable.
Overall, these supply responses have erased the projected supply and demand deficits for both 23/24 and 24/25 seasons.
The positive news is that projected consumption numbers have largely not been impacted by the period of higher prices. It appears the global appetite for sugar can withstand elevated sugar prices without a significant decrease in demand. Will the current price declines be enough to trigger an uptick in demand as countries move to rebuild depleted stocks?
If you’d like to know more, please contact our Grower Marketing consultants, Meghan Wilson on 0437 669 118 or Fiona Villis on 0437 297 978.
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