W12 Sugar Update: Sugar Prices Surge on Brazil Drought Concerns, US Faces Tariff Hikes and Mexican Supply Shortfall

Published 2024년 4월 1일

In W12 in the sugar landscape, global sugar prices surged on March 21, 2024, as concerns about drought in Brazil sparked hedging activities on futures exchanges. All raw and white sugar contracts on ICE Futures saw notable gains, driven by forecasts of minimal rainfall in Brazil's Center-South region. StoneX revised its production estimates downward due to potential weather-related productivity declines. In the US, high-tariff sugar imports are expected to double in the current crop year, compounded by reduced production in Mexico, the primary US sugar supplier. These factors are anticipated to maintain elevated domestic sugar prices, with limited access to lower-tariff import quotas further impacting the market.

Sugar Prices Rise on Global Exchanges Amidst Drought Concerns in Brazil

Global sugar prices on futures exchanges exhibited significant increases on March 21, 2024, due to concerns about drought conditions in Brazil, the world's leading sugar producer. Forecasts of minimal rainfall in Brazil's key sugar-producing Center-South region over W13 spurred activity among market participants seeking to hedge against potential supply disruptions. This resulted in increased coverage of positions in sugar futures contracts.

All raw sugar contracts on the Intercontinental Exchange (ICE) Futures in New York closed higher. The most actively traded contract, expiring on May-24, rose by 29 points to USD 0.2206 per pound (lb) compared to the previous day. Other contracts also exhibited positive movements, ranging from 15 to 32 points. Similarly, all white sugar contracts on ICE Futures Europe closed higher. The May-24 contract rose by USD 11.20 to USD 640 per metric ton (mt), while other contracts saw increases ranging from USD 1.90 to USD 7.70/mt.

Brokerage firm StoneX significantly revised its production estimates. Total sugarcane crushing is now forecast at 602 million metric tons (mmt), down from the previous projection of 622 mmt made in Jan-24. This decline is attributed to a potential 9% drop in agricultural productivity due to the weather. Sugar production in the Center-South region is also expected to be impacted, with a revised estimate of 42.3 mmt compared to the earlier projection of 43.1 mmt.

US Sugar Imports Forecast to Rise Amidst High Tariffs and Mexican Supply Shortfall

The United States (US) sugar market is projected to face a unique scenario in the current crop year (Oct-23 to Sep-24), characterized by high-tariff imports and a significant supply shortfall from a key trading partner. Sugar imports subject to the highest tariff tier, USD 360/mt in the US, are expected to reach an estimated 750 thousand mt in the 2023/24 crop year, representing a doubling of high-tariff imports over the past five years.

The leading US sugar supplier due to preferential trade agreements, Mexico is experiencing a second consecutive year of reduced production. Sugar output in Mexico is estimated to fall to 4.7 mmt in 2023/24, marking a 10-year low and a significant decline from the typical production level of around 6 mmt annually. This shortfall restricts the availability of sugar under lower-tariff quotas for US imports. The combination of high-tariff imports and limited access to lower-tariff alternatives is expected to keep domestic US sugar prices elevated, potentially reaching nearly double the international reference price. The US sugar market could witness a rise in high-tariff imports in the current crop year to compensate for the supply shortfall from Mexico. This trend, coupled with limited access to cheaper import quotas, is expected to maintain high domestic sugar prices for consumers.