Tariffs and exchange rates drive down sugar prices on the global market

Last week began with the fallout from the first round of tariffs, leading to a cautious market environment. Recession fears and supply chain disruptions hit key sectors, including the energy complex.

Sugar, in particular, suffered significant losses. On a macro level, the week began working against any recovery in sugar prices. The depreciation of the real, following a strengthening of the dollar, which typically signals a selling opportunity for Brazilian producers, further contributed to the already bearish fundamentals. The sweetener is currently facing the approach of the new harvest in the Center-South, increasing short-term availability amid sluggish demand. Consequently, it was not surprising to see raw sugar close on Tuesday at 18,3 cents per pound.

"Last week, the sugar market experienced significant volatility due to the escalation of the 'Liberation Day' results, which sparked fears of recession and supply chain disruptions. The depreciation of the real further contributed to the bearish fundamentals, including the expected increase in the availability of the new crop from the Center-South, leading to a drop in sugar prices", assesses Lívea Coda, Market Intelligence Coordinator at Hedgepoint Global Markets.

However, the market rebounded on Wednesday as tariffs escalated, as the US focused on China and introduced a 90-day pause for other countries that did not retaliate, as well as reducing its tariffs to 10%. The sugar market showed some signs of improvement the following day, but this did not alter the short-term bearish outlook. Other stocks, the energy complex and the US dollar also posted losses on the same day, underscoring the prevailing uncertainty and the need for caution. Finally, the sweetener ended the week with a weekly loss of more than 4%, at 18c/lb.

As the market digests all the changes that occurred last week and cautiously awaits possible new inflection points, it is important to keep an eye on the sweetener's fundamentals.

It is worth mentioning that after the sudden drop in sugar prices, Chinese import arbitrage was expected to open up to non-producing regions. Surprisingly, this was not enough to sustain the sweetener in the short term, and there were no rumors of China making new purchases. One reason could be that the country has been particularly involved in the recent tariff developments and may be the most affected by them. The Chinese economy was already suffering a slowdown due to a weak real estate sector, and the new trade war adds another layer of uncertainty.

However, looking ahead, given that China’s import pace has been quite slow, we could see some support coming from the region, potentially bringing prices back to 18,5c/lb, especially after the country finishes its record-breaking crushing season. As expected, sugar production is building up to reach 11Mt by the end of the 2024/2025 season, having already produced 10,75Mt by the end of March. This could also be one of the reasons that held China back from taking action last week.

 In other Asia-related news, the final results of Thailand’s crushing season have started to be released, showing that 92 Mt of cane was harvested and 10 Mt of sugar was produced. While this result is below initial expectations, it is still healthier compared to the previous year, when approximately 82 Mt of cane was harvested.

On the other fundamentals front, Brazil continues to add to the bearish side of the equation. While the market anxiously awaits the Unica closing report on 24/25, rains have returned to the Center-South, easing some of the pessimism brought by a dry February, with improvements in indices such as the VHI (vegetation health index). Furthermore, as we enter the new Brazilian season, sugar futures may encounter some resistance to potential recoveries, at least until there are major bullish headlines.

Additionally, NOAA confirmed the end of the La Niña period and the beginning of a Neutral phase, which could positively impact crop development in the Northern Hemisphere. In related news, forecasts for the quality of the Indian monsoon indicate that rainfall in 2025 is expected to be 3% above the long-term average, which could lead to greater sugarcane availability in the 2025/2026 season.