Hedgepoint analyzes possible effects of La Niña on sugar production and the global market

After two weeks of falling sugar prices due to a more positive outlook in the Northern Hemisphere, raw and white sugar contracts have been on the rise since last Thursday (25), approaching 19 c/lb for sugar gross.

According to Lívea Coda, Sugar and Ethanol analyst at Hedgepoint Global Markets, prices were boosted by lower-than-expected Brazilian harvest numbers, following the release of Unica numbers on the 25th.

“However, the medium-term scenario continues to be more bearish. In Brazil, the Center-South should still achieve good sugar production in 24/25, and countries like India and Thailand may have favorable weather this year, which should allow for greater production”, he notes.

“So, as interesting as it is to discuss price movements, this report aims to recap the possible effects of La Niña, which may not be as intense for the sugar market,” he says.

Data recently released by NOAA points to an increased probability of an active La Niña starting in August (70%), but with a greater probability between November and February (78%).

“This moment puts the spring and summer of the Center-South (CS) region of Brazil at the center of attention, as it coincides with the sugarcane development window. Furthermore, winter and crushing in the Northern Hemisphere would also be at their peak, so it is also worth monitoring”, he ponders.

“However, analyzing the correlation between precipitation patterns and ENSO occurrences, it seems unlikely that La Niña will significantly affect the Central-South region of Brazil. It would take a particularly strong weather event to cause drier conditions in this area. The same cannot be said about temperature. As their correlation is stronger, we could expect a colder summer”, explains the analyst.

A slightly lower temperature does not pose a significant threat to sugarcane development, unlike another dry summer.

“As the intensity of the event has been revised downwards, combined with the low correlation, we can remain quite optimistic regarding Brazil’s 2025/26 season, at least for now”, he believes.

He continues: “Relative to other important suppliers, such as India and Thailand, they also show a low correlation between precipitation and the event.”

However, if La Niña were extremely strong, it could lead to wetter conditions in Southeast Asia and Oceania, potentially affecting Thailand's milling pace. However, the recently revised lower intensity suggests otherwise.

Therefore, unlike previous years, we may be entering a more neutral zone. This trend could, ceteris paribus, allow the supply side to recover from the adverse climate impacts of previous harvests.

“For example, stocks are expected to build up in India and, as we discussed in our previous reports, the country could return to the export market in 2024/25,” he says.

Increased availability could lead to softer prices, making demand the main driver of future growth and the most difficult to predict.

“Considering that sugar demand tends to be resilient, especially in developing countries, global growth is expected to remain around its 1% average. One point to highlight is that, although a surplus year is predicted for 2024/25 (October-September), it could be modest, with less than 1 Mt”, he points out.

In terms of trade flows, monitoring China's purchasing behavior is crucial. The country is expected to have improved crushing in 2024/25, with the China Sugar Association estimating 11 Mt of domestic availability. This would reduce the country's import needs by at least 500kt, contributing to a more bearish market outlook.

In summary, La Niña is expected to become active between August and February, which coincides with the sugarcane development window in Central-South Brazil and the crushing period in the Northern Hemisphere. However, the correlation between ENSO occurrences and precipitation suggests that La Niña is unlikely to significantly affect the Central-South region of Brazil, although cooler temperatures can be expected.

Major suppliers such as India and Thailand also have a low correlation with La Niña, and the revised lower intensity of the event supports a more neutral outlook, potentially allowing for supply recovery. Increased availability could lead to softer prices, making demand the most significant driver of upside.

Global sugar demand is expected to grow by around 1%, and a modest surplus is forecast for 2024/25. Monitoring China's purchasing behavior is crucial as increased domestic availability could reduce imports and contribute to a bearish market outlook.