Monetary decisions impact the global sugar market

Hedgepoint assesses that the appreciation of the Real supported sugar prices

04.02.2025 | 14:44 (UTC -3)
Luciana Minami

Last week, monetary policy decisions impacted markets. In the US, the Federal Reserve (Fed) kept interest rates steady after three cuts, causing stock markets to fall. Jerome Powell's speech, however, eased pressure on the dollar by signaling that a rate hike in 2025 would be unlikely.

In Brazil, Copom raised the Selic rate to 13,25% and signaled a new increase in March, reflecting the revision of inflation to 5,2%, above the 3% target.

These political measures helped to prolong the appreciation of the real against the dollar for eight weeks, widening the interest rate differential between Brazil and the US.

According to Lívea Coda, Market Intelligence Coordinator at Hedgepoint Global Markets, “with the real stronger, Brazilian producers have shown greater caution in sales, supporting the recent rise in sugar prices. In addition, fiscal uncertainties may still limit exchange rate gains.”

However, macroeconomic factors were not solely responsible for the rise in sugar to 19,5 c/lb.

Last week, Unica released its report for the first half of January, indicating a rapid reduction in sugar availability in Brazil, a typical movement during the off-season. With the crushing of around 400kt of sugarcane and a very low production mix, the production of the sweetener is nearing its end. There are still discussions about some crushing in March, especially with favorable rains, which could lead to the 24/25 harvest reaching 620Mt, since the current figures total 614Mt.

The prospect of lower availability in Brazil over the next two months has supported sugar prices in the short term. In addition, other factors from last week also reinforced this support.

Last week, rumors of Chinese buying emerged as prices fell below 18,5c/lb. While parity was not fully open in our estimates, it was close enough that some non-producing regions could have seized the opportunity.

“Still on the demand side, the Trading Corporation of Bangladesh (TBC) announced a local tender to import 10kt of sugar, ensuring supply during Ramadan. Despite being a one-off event, it reinforces the idea that the festival can sustain prices in the short term, as we had discussed in a previous report,” he notes.

As for supply, in addition to concerns about Brazil, sales from India remain slow. The export parity for raw sugar is slightly open, which could keep prices firm while millers seek higher prices. As for white sugar, despite the more favorable parity, there is resistance in sales, as producers ask for a premium that buyers may not be willing to pay.

“Considering these factors, there is short-term support for sugar. However, it is important to remember that trade flows are expected to be more comfortable in the coming months compared to previous years. This makes it unlikely that prices will reach the 23-25c/lb level any time soon. Given this scenario, current levels seem fair, with a greater possibility of a decline than an increase in the future,” he concludes.

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