Sugar: impacts from India and Brazilian harvest in the spotlight

Last week, India was in the spotlight due to rumors about the possible easing of import restrictions, which generated a bearish sentiment in the market. The country's production showed a lag of 17,8% until the end of December, compared to the same period last year.

According to Lívea Coda, Market Intelligence Coordinator at Hedgepoint Global Markets, “Most of this difference can be attributed to delays in the start of the harvest. One reason that corroborates this opinion is the fact that, in December, the crushing was in line with the results for 2023. Secondly, the results for the first half of January reduced the difference to 15,3%”.

However, average sugar recovery was lower than expected, suggesting lower production and export capacity. With an average market estimate of 28 Mt, India would need to draw down its stocks to meet consumption of more than 29 Mt of sugar, making export rumors unlikely.

“In addition to production, two points are important to monitor. The first is India’s domestic prices, which underwent a sharp correction at the beginning of the crop year, but have recently found support, which could negatively impact exports,” highlights the analyst.

He continues: “The second point is that resistance to the correction of domestic prices has made the export parity more stable than international sugar prices, reducing the incentive for Indian millers to export unless they have more sugar available than the market expects.”

It is difficult to classify India as a bull or bear factor, as the situation may change depending on the coming months and government decisions. However, the market sees it more as a bull factor at the moment. “In any case, the greater availability of Brazil has offset the uncertainties regarding India, and trade flows seem to be moving towards a surplus,” he notes.

Unica’s latest report, released on Wednesday (15), highlighted a healthy 24/25 season despite adverse weather conditions. With over 1 Mt crushed and 613 Mt through December, mills continue to operate, defying sudden death predictions discussed in August 2024.

“These results have increased expectations that the 24/25 harvest will end with more than 620 Mt of crushed sugarcane, producing almost 40 Mt of sugar and allowing high exports. In addition, recent rains and less intense adverse weather conditions indicate good results for the 25/26 harvest as well,” he says.

The bearish sentiment is in line with sugar prices, which are hovering around 18 cents per pound and are expected to stagnate unless there is any bullish news. China has not bought substantially and international prices would need to fall to 16,5 cents per pound for parity to open up in non-producing states.

On the upside, the price of sugar at the port of Santos is at a premium, indicating demand for the product. January delivery has a premium of 8 points and February delivery has a premium of 25 points.

“With reduced availability at the end of the off-season, there may be a temporary increase in prices, but the trend is short-lived. Demand can wait until the 25/26 harvest, and the increase in volume is close, considering the good prospects for the next harvest,” he concludes.