Sugar Prices Retreat Amid Bearish Supply Dynamics

Sugar prices tumbled on Monday, with NY sugar reaching a 4-month low and London sugar falling to a 2-3/4 year low. The rally in the dollar index (DXY00) to a 2-year high weighed on commodity prices, including sugar. Over the past three months, sugar prices have declined, driven by improved supply forecasts.

Global Sugar Production Outlook

The International Sugar Organization (ISO) on November 21 revised its 2024/25 global sugar deficit forecast to -2.51 MMT from the previous -3.58 MMT in August. Additionally, ISO raised its 2023/24 global sugar surplus projection to 1.31 MMT, up from +200,000 MT.
India’s Food Secretary Chopra indicated on December 19 that India might allow sugar exports if surplus production exceeds domestic ethanol needs. India estimates a 1 MMT sugar surplus this season. Thailand’s sugar production outlook also pressures prices, with the Office of the Cane and Sugar Board projecting an 18% y/y increase in 2024/25 output to 10.35 MMT.

Mixed Signals from Key Producers

In contrast to the surplus, lower sugar production in India provides some support. The Indian Sugar and Bio-energy Manufacturers Association (ISM) reported a 15.5% y/y drop in production to 9.54 MMT between October 1 and December 31, 2024. Reduced output may lead to continued export restrictions, limiting global supply.

Brazil, the world’s top sugar producer, has faced setbacks due to drought and fires in São Paulo, which damaged up to 80,000 hectares of sugarcane. Conab reduced its 2024/25 production estimate to 44 MMT from 46 MMT, citing lower yields. Meanwhile, Unica reported a 5.1% y/y decline in Center-South production through mid-December to 39.711 MMT, with fewer mills operating compared to last year.

Short Positions and Consumption Trends

Funds holding excessive short positions in London sugar could trigger a short-covering rally. The latest Commitment of Traders (COT) report revealed a 5-year high of 2,515 net short positions as of January 7.

The USDA’s November 21 report projects global sugar production for 2024/25 will rise by 1.5% y/y to 186.619 MMT, while consumption is expected to grow by 1.2% y/y to a record 179.63 MMT. However, global ending stocks are forecasted to decline by 6.1% y/y to 45.427 MMT, adding a potential support factor for prices.

The interplay of surpluses, reduced outputs, and shifting consumption trends will likely keep sugar markets volatile in the coming months.

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