Hedgepoint Updates Global Sugar Balance Sheet

Analyst discusses scenarios for the markets of Brazil, India, Thailand, the European Union and the United Kingdom, among others

29.10.2024 | 15:00 (UTC -3)
Luciana Minami

Hedgepoint Global Markets Sugar and Ethanol analyst Lívea Coda discusses the scenarios for the markets of Brazil, India, Thailand, the European Union and the United Kingdom, Mexico, the United States, Guatemala, Ukraine, Russia and China in the Global Sugar Balance and Trade Flow.

Sugar market sentiment has shifted to a more bullish outlook. “Since April, production estimates for the Center-South region have been downgraded due to adverse weather conditions and fires. Although the Northern Hemisphere is expected to recover, its production will still fall short of historical levels. Thus, trade flows are expected to experience significant pressure between the fourth quarter of 2024 and the first quarter of 2025, contributing to an upward trend in the short and medium term,” says Lívea.

With the start of the harvest in the Northern Hemisphere, the availability of white sugar is expected to increase, putting downward pressure on the white sugar premium.

“This situation is particularly challenging for coastal refineries, especially due to the longer and more severe off-season period in the Center-South region, which should increase the price of raw sugar,” he highlights.

According to the analyst, “Brazil is expected to produce around 610 Mt of sugarcane and approximately 39,8 Mt of sugar, while Europe, Central America and Thailand are expected to contribute more to the international market”.

With India's sugar exports estimated at 1,5 Mt, given the favourable parity, risks appear to be more on the upside than the downside.

As sugar exports are subject to the Indian government's policy decisions, there may be reluctance to grant quotas if stocks do not build up fast enough, possibly adding to the short- to medium-term deficit.

“Meanwhile, discussions about Brazil’s 2025/26 season are just beginning, and the outlook is not encouraging. Therefore, although somewhat balanced for the year, considering the sum of Q4/24 and Q3/25, the risks are of reduced availability,” he believes.

Currently, several issues are evident regarding the development of the Center-South for 25/26: fires have affected the region, soil moisture levels are low and planting has been delayed, but summer rains will be a critical factor.

“Consequently, we have revised our initial ‘educated guess’ from 620 Mt to 600 Mt, which is still dependent on summer rains. This revision implies a reduction in the potential downward pressure that the market would suffer as we approach the second quarter of 2025, compared to our previous estimates, indicating a higher price range,” it indicates.

Brazil CS

By the end of September, sugarcane volumes in the Center-South had already surpassed 505 Mt, indicating a strong likelihood of reaching our forecast of 610 Mt by the end of the 24/25 season. Total Recoverable Sugar (TRS) levels have been exceptionally high in the last fortnight due to dry weather; however, quality has not been ideal. A higher concentration of reducing sugars prevented mills from reaching the desired mix level, keeping it below 48%.

Consequently, we have adjusted our end-of-season mix estimate to 48,2%. Combined with an ATR of 142 kg/t, this adjustment suggests total sugar production of 39,8 Mt. As a result, the Center-South region could export 31,5 Mt of the sweetener this season, with 18,7 Mt already shipped by September.

For the upcoming season, summer rainfall will be a critical factor. While we wait, some factors are clear: fires have affected the region, although the extent is difficult to measure; soil moisture remains low; and planting has been delayed. The situation is similar to that of the 16/17 season, which also suffered from the occurrence of El Niño, with planting delays, but soil moisture was slightly higher.

With Inmet forecasting better summer rains for most sugarcane producing regions, we revised our initial projection from 620 Mt to 600 Mt, still above the market average. Without changes in our blend estimate (51,9%) or ATR (141,7 kg/t), the Center-South could reach 42 Mt of the sweetener, with potential exports close to 33 Mt. However, this change has already affected our trade flows, reducing the expected surplus when the region starts the new season.

Brazil CS Ethanol

The Otto Cycle in the Center-South region performed as expected, in line with our projected 2,6% growth rate for the 2024/25 crop year. As noted in previous reports, drought conditions and recent fires in the region made it difficult for mills to achieve desired sugar mix levels. This resulted in higher-than-expected ethanol production, relieving inventory levels somewhat. Consequently, ethanol prices remained low, lagging behind sugar prices.

However, in states such as Paraná and Minas Gerais, parity at the pump has risen to around 68%, where shifts in consumer preference between ethanol and its fossil fuel alternative are already visible – although energy equivalence remains between 70 and 73%. Notably, Unica’s latest report highlighted strong domestic anhydrous sales. Despite this, hydrous sales growth remains impressive, with sales up over 30% year-on-year throughout the season.

Brazil NNE

The North-Northeast (NNE) region is on track for another strong year. For the 2024/25 season, sugarcane production is expected to reach at least 63 Mt. However, recent rains could affect total recoverable sugar (TRS), which is now projected to remain below 2023/24 levels at 125 kg/t. With a higher sugar mix of around 50%, the region is expected to produce 3,8 Mt of sugar.

By the end of September, data from Brazil’s Ministry of Agriculture (Mapa) shows that the NNE region had already produced 738 tonnes of sugar, 24% above the 596 tonnes produced in the same period in 2023/24. In terms of biofuels, the region produced 631 million litres during the period between April and September, compared to 1,1 billion litres in the previous season, a direct impact of a higher sugar mix. Coupled with increased fuel consumption, the need to transfer products from the Centre-South to the NNE may be greater during the off-season.

India

This year’s monsoons were slightly above average, ensuring sufficient rainfall in major sugarcane-growing states. The monsoons have progressed well and are expected to remain active through October. As mills are expected to start crushing later than usual due to Diwali celebrations, the additional rains in October are unlikely to affect operations. Sugar production is expected to be strong, with post-divert production for ethanol likely to reach 31,7 Mt. Considering domestic consumption of around 29,6 Mt, India could export up to 1,5 Mt.

While the export decision is politically sensitive, current price levels and parity make it feasible. At around 20 cents per pound, domestic and international markets offer comparable profitability, presenting an attractive margin. However, any formal decision on exports will likely come only after stocks begin to build, with an official announcement expected no earlier than January.

Thailand

Thailand’s sugarcane crushing season is expected to start in the first half of December. Current market estimates vary widely, between 92 and 110 Mt of sugarcane, with our projection of 102 Mt, driven by the recovery in productivity and an expansion of almost 10% in the area under sugarcane cultivation.

This shift reflects the increased competitiveness of sugarcane relative to cassava and the positive impact of a strong monsoon on sugarcane growth. As a result, sugar production is expected to approach 11 Mt – still below historical capacity, but sufficient to boost exports to around 7,8 Mt, increasing Thailand’s contribution to the global market.

EU 27 and United Kingdom

Europe and the UK are the main contributors to the weakening white sugar market. The European Commission recently raised its production estimates, directly impacting our outlook as major producers such as Germany, Poland and France forecast better production.

Favorable weather conditions supported sugar beet development, with MARS adjusting its sugar beet yield forecasts to above the five-year average. In addition, the industry reported a notable increase in planted area. Reports from the UK are also upbeat, indicating increased availability of a major white sugar supplier.

Our current estimate, taking into account the ethanol diversion, is that the region will produce 16,5 Mt of sugar. This increased supply is expected to limit the region’s need for imports, reducing their volume from 2,3 Mt in 23/24 to around 1,8 Mt in 24/25. At the same time, exports are likely to remain at the upper limit, putting additional pressure on the white sugar market.

Mexico

Mexico’s 23/24 harvest ended with total sugar production of 4,7 Mt. During the year, the country imported 722 kt of sugar, down 4% from the previous year but still above the five-year average of 505 kt. Domestic sugar consumption fell to 3,4 Mt and exports plummeted to just 451 kt – almost 70% below the five-year average and 55% below the previous season.

Consequently, Mexico’s ending stocks rose to 1,4 Mt, marking the highest level in recent history. This stock level indicates that even with a partial recovery in production expected for 24/25, Mexico can increase its share of international trade without risking domestic availability. Therefore, for 24/25, we expect the country to import less (300kt), a similar trend to that observed between 17/18 and 18/19, while exporting around 900kt.

EUA

Between September and October, the USDA report showed minimal changes in US sugar production estimates. With increased imports and a larger sugar supply for 2023/24, ending stocks remained elevated at 2 Mt, maintaining a high stocks-to-use ratio of 17,6%.

Although Mexico, the country's main trading partner, saw its share of US imports fall from 32% to 13,5% between seasons due to crop failure, the US still imported approximately 3,5 Mt of sugar, offsetting it with high tariff quotas from other sources, such as Guatemala.

USDA also noted improvements in production expected for 2024/25, which, combined with higher ending stocks in 2023/24, suggests a reduced reliance on imports going forward. Both cane and beet sugar are expected to improve, however, the latter is showing higher growth, close to 4% year-over-year.

Guatemala

Guatemala’s sugar production for 24/25 is expected to be in line with or slightly exceed 23/24 levels, as most of the country’s production occurs along the west coast, primarily in Escuintla and Suchitepequez, where rainfall has been above average. Crushing typically begins in early November, but the forecast for above-average rainfall for the period could cause some delays.

During the Northern Hemisphere winter, La Niña typically has little effect on the region, so precipitation is likely to remain close to seasonal averages, contributing to the season's milling pace.

In terms of market availability, increased sugar production in Mexico and the United States may reduce the need for the United States to reallocate its tariffs. Consequently, Guatemalan sugar should be available for other markets in the 24/25 season.

Ucrania

In the 23/24 marketing year (September 2023 to August 2024), Ukraine exported 691,8 thousand tonnes of sugar, 77% of which went to EU countries and 23% to other global markets. According to UKRsugar, the main importers in the EU were Italy (19% of Ukraine’s sugar exports to the EU), Bulgaria (18%) and Hungary (14%). Outside the EU, the main export markets included Cameroon, which received 17% of Ukraine’s global sugar exports, Libya with 15% and Turkey with 11%.

Looking ahead, we remain optimistic about Ukraine’s production for the 24/25 season, at around 2 Mt. Important regions such as Ternopil and Vinnytsia have already produced 130 and 140 thousand tons, respectively. Ternopil, which benefited from favorable weather during the sugar beet development, increased production by 30% compared to last season and is expected to exceed 240 thousand tons. However, oversupply in the market may affect planting decisions for the next season.

Russia

As of October 14, Russia had produced almost 3 Mt of sugar, harvesting 759,7 thousand hectares, which yielded 28,26 Mt of sugar beet. Our expectations remain unchanged, forecasting a lower production of approximately 6,3 Mt, including syrup, due to challenging weather conditions.

According to the Eurasian Sugar Association, as reported by sugar.ru, the region's total sugar production since the beginning of the season reached 3,2 Mt. Russia contributed almost 3 Mt, while Belarus produced about 198 thousand tons (+24 thousand tons year-on-year), Kazakhstan 9,3 thousand tons (+4,2 thousand tons) and Kyrgyzstan 12,2 thousand tons (+1,25 thousand tons).

China

China concluded the 23/24 season with 4,75 Mt of sugar imports and 2,1 Mt of syrup imports. We estimate that an additional 350 tonnes may have entered via smuggling, bringing total imports to around 7,3 Mt. Combined with domestic production of 9,96 Mt and consumption of 15,7 Mt, China’s sweetener stocks rose to 7,8 Mt, in line with the 10-year average.

As for 24/25, higher domestic production could reduce the need for sugar imports (as such) to 2,7 Mt, assuming stable inventory levels and considering price forecasts. China is strategic with its import schedule and, with a deficit in global trade flows and potential crop problems in the Center-South, the country may be cautious before committing to new purchases. China is also capitalizing on the syrup market, a trend that should continue. We estimate that around 2 Mt of syrup will be imported next season.

In terms of production, Guangxi is receiving plenty of rain and may start crushing earlier, around early November, due to increased cane production. Yunnan has also had favorable and sunny weather recently and is expected to surpass last season's production.

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