Sugar market reacts to deteriorating harvest in the Center-South, while funds adjust positions

The weather in Brazil’s Center-South region continues to be a major focus for the sugar market. According to Lívea Coda, Sugar and Ethanol Analyst at Hedgepoint Global Markets, “dry and hot conditions are expected to persist in most areas during the coming week, increasing the risk of fires and potentially worsening the condition of the cane.”

The analyst considers that, “however, there is hope: long-term forecasts indicate some improvement in rainfall for October and November, which could bring relief, at least in relation to the fires”.

Unica released its report for the first half of September, showing slightly higher cane crushing, higher ATR, but reduced mix, confirming the fact that the fires have indeed contributed to the persistent trend of lower purity, quality and efficiency. According to Unica’s director, the concentration of reducing sugars is 11% higher compared to last season, inducing a lower sugar mix.

“Our dataset update resulted in a drop in the season-ending index value from 48,6% to 48,47%, indicating that it could approach 48,3% if there is no recovery in the next four fortnights. Each 1 percentage point drop in the sugar mix could result in approximately 80-100kt less sugar and therefore 80-100kt more deficit between Q3-24 and Q1-25,” it indicates.

The continued deterioration of the Brazilian crop has caught the attention of funds, which finally appear to be shifting from a neutral stance to fully covering their short positions.

This price movement occurred in a more supportive macroeconomic environment following the Fed’s rate cut, which supported the rally. October contract prices broke through the 23c/lb level, reaching a seven-month high of 23,42c/lb last Wednesday (September 25).

“However, the sugar rally was tempered by the optimistic outlook of Indian authorities, including the Food Minister and the Cabinet Secretary, regarding the development of the country’s 2024/25 crop. Furthermore, ISMA projected that with 4-4,5 million tonnes diverted to ethanol production, ending stocks would be around 8,3 million tonnes, allowing for approximately 2 million tonnes of exports – consistent with our unchanged estimate of at least 1,5 million tonnes,” it explains.

This discussion is timely, as March, May and July 2025 contracts are currently trading at a premium to Indian export parity. “Thus, this dynamic is likely to provide a level of support for sugar during the off-season, around 21 c/lb, especially considering the greater deterioration of the Center-South crop,” he points out.

As the market shifts focus to the March contract, October is still generating some uncertainty.

“While open interest suggests a potential delivery of 700 tonnes, following a similar trend to 2022, some are perplexed by the reported premium on Brazilian raw sugar offered for November (around 90 points), which would indicate buying interest from short positions and, possibly, a rally in its last section. Let's see how today unfolds”, he notes.

Meanwhile, white sugar has not reacted as strongly to the recent rise in raw sugar prices. “This makes sense, as most of the bullish news is centered on the largest raw sugar producer, while white sugar producers are recovering. In addition to the Indian outlook, Europe is showing signs of improvement,” he said.

For example, the MARS agency increased its yield forecast for sugar beet from 73,4 t/ha to 74,7 t/ha, thanks to favorable weather in Western Europe.

“It is no wonder that white trade flows are more comfortable, increasing pressure on the white premium,” he concludes.

In summary, Brazil’s Center-South sugarcane crop continues to face dry and hot conditions, increasing fire risks and reducing sugar quality. Although long-term forecasts show a possible relief from rains in October and November, the damage has already reduced the sugar mix, and projections suggest further declines.

This caught the attention of funds, contributing to a rally in sugar prices, with October hitting a seven-month high. However, optimism over India’s 2024/25 crop and improved EU beet production tempered the rally, especially in white sugar, which saw a more muted reaction due to stronger production prospects in key producing regions.