Sugar: effects of adverse weather in the Center-South could reduce the 2024-25 harvest

Weather has always played an important role in the sugar market. Its impact has been fundamental in the last two or three years, especially after Brazil's significant crop failure in 2021/2022. More recently, adverse weather conditions in the Northern Hemisphere reinforced market support. This is what Hedgepoint's new analysis of the prospects for the 2024/25 harvest indicates.  

“The level of 23,8c/lb seen in early February for raw sugar is around 40% higher than the 23-year average over the same period. For white sugar, the difference is greater: prices are currently 45% higher. This makes it clear that the market is navigating a much tighter scenario, with greater demand and supply disruptions. In this context, it becomes essential to understand the effects of climate on future availability”, explains Lívea Coda, Sugar analyst at Hedgepoint Global Markets. 

“As discussed in previous reports, our models showed that sugarcane production in the Center-South of Brazil could suffer a reduction of at least 6% in 24/25, inducing a drop from almost 655Mt to 620Mt. However, if we take into account the historical trend, this variation becomes 7,2% and could lead to 611Mt”, highlights the analyst. 

Although rainfall improved during the first half of January, the second half showed a contrasting result, leading to insufficient performance in the month to offset the decrease in soil moisture observed in December. At least in some regions.

As Lívea points out, “the difficulty in estimating an additional reduction in production in the Center-South is based on the fact that the rains were quite irregular and dispersed throughout the region. While Ribeirão Preto, responsible for around 14% of Brazil's total sugarcane production, received well below average rainfall and remains at the lower limit of historical values, São José do Rio Preto is close to average. It is estimated that this last region is responsible for 10% of the total sugarcane availability in Brazil and, together with Araçatuba and Bauru, which account for 6 and 5% of the total sugarcane volume, alleviates some of the concerns”. 

Therefore, some regions have been affected more than others and, in general, soil moisture is not encouraging. 

However, the region's NDVI (Normalized Difference Vegetation Index), which measures a plant's ability to absorb sunlight, improved during the month. This index is widely used to measure and monitor plant health, as crops that have better absorption of sunlight during the early stages of development can improve productivity. 

“Combining the NDVI with the fact that rainfall and soil moisture were on track through November, we still feel comfortable maintaining a more bearish view for prices, with 620 Mt for next season,” he says. 

However, if February and the first half of March also experience below-average precipitation, we may be forced to adopt our lower estimates. That would be bullish for the market.