W38: Sugar Update

In W38 in the sugar landscape, sugar futures for the Oct-23 contract rose to USD 0.264 per pound (lb) on September 18 and then increased by 1.2% to USD 0.274/lb on September 19, hitting a 12-year high. This rise was attributed to the devaluation of the United States (US) dollar and concerns about reduced sugar production in India and Thailand due to El Niño-related dry weather. However, on September 20, sugar futures fell by 2.06% to USD 0.2679/lb due to profit-taking after recent highs. On September 21, prices rebounded by 0.5% to USD 0.2693/lb, driven by India's improved production forecast due to good Sept-23 rainfall. The Indian government also planned to release extra sugar stocks locally to stabilize prices. On September 22, sugar futures rose to USD 0.2697/lb. Expectations of lower production in India suggest that global prices may remain high, possibly reaching close to USD 0.30/lb.

The global sugar market is facing challenges, including weather-related crop failures and export bans by major sugar-producing countries. Oct-23 raw sugar futures contract on ICE has risen to over USD 597 per metric ton (mt). India, which exported a record 11.2 million metric tons (mmt) of sugar in the 2021/22 crop year, is now prioritizing domestic supply over exports. The Indian government aims to maintain a 2-month sugar stockpile, approximately 6.0 mmt, starting with the Nov-23 sugar harvest. In Maharashtra, India's second-largest sugar-producing state, erratic rainfall has led to drought-like conditions, prompting the government to restrict sugarcane sales outside the state to ensure sufficient supply for local mills.

Similarly, Thailand expects an 18% decline in sugar production in the 2023/24 crop year due to hot and dry weather, which could strain the global sugar market. Some farmers may explore switching to cassava cultivation, hoping it can handle the heat better, but the drought's severity could affect the growth of sugarcane, cassava, and rice, among other crops.

On the contrary, sugarcane crushing in central-south Brazil in the 2023/24 season is expected to reach a record-breaking 624.5 mmt, with the region benefiting from high productivity levels. This estimate surpasses the previous projection of 612.3 mmt and even exceeds the historical record set in 2015/16, which stood at 623.1 mmt, as reported by Datagro. Additionally, sugar production in the same region is projected to hit a historic high of 40.3 mmt, marking a 19.5% increase compared to the previous season's forecast of 39.45 mmt.

Meanwhile, in 2023, French farmers are discouraged from expanding their sugar beet cultivation due to stiff competition from Ukrainian sugar. This is a response to concerns in Eastern Europe regarding an influx of agricultural products from Ukraine, particularly after the European Commission lifted import restrictions. Reduced sugar production in France, with the smallest beet cultivation area in 14 years, has led to a 57% year-on-year (YoY) surge in European sugar prices to USD 967.77 and USD 1039.69/mt. For the 2023/24 season, the European Union (EU) is projected to import 2.5 mmt of sugar, including 500 thousand mt from Ukraine. While domestic sugar is already considered in the EU's balance sheet, this has sparked concerns among EU processors.

Lastly, in the Republic of Bashkortostan, Russia, sugar beet harvesting is ongoing, with farmers having already harvested 12% of the beet-growing area, equivalent to over 6 thousand hectares (ha), and yielding 160 thousand mt of root crops. Sugar factories in the region are actively receiving and processing these sugar beets for the 2023 harvest.

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