On Monday, sugar prices plummeted amid expectations of a massive delivery against October Futures contracts and waning demand.
Sugar futures for October declined 2.57% and closed at ¢26.58 per pound. March futures ended the day at ¢26.52 per pound after a 2.79% loss.
116,157 lots of October futures will expire on September 29, a 113.13% increase from 54,501 lots last year. China contributed the most to the diminished demand by reducing its year-over-year imports by 46.40% to 370,000 metric tons.
The Brazilian real has also dropped to a 2-week low against the dollar, encouraging local farmers to export their harvests. Brazilian producers will likely continue adding to the surplus as market watchers expect the real to weaken throughout next month.
According to the US Department of Agriculture (USDA), local demand for the sweetener has dropped. Its World Agricultural Supply and Demand Estimates (WASDE) reported a drop of 175,000 tons in domestic demand for sugar.
Sugar’s sharp price decrease came after the commodity posted a 12-year nearest-futures high of ¢27.14 per pound on September 19. Industry watchers anticipate a short-term decline, followed by a strong price rebound.
Their expectation was supported by the International Sugar Organization’s (ISO) projection of a 2.12-million-ton deficit in the 2023-2024 season. Moreover, it estimated a 1.20% year-over-year reduction in global sugar production from El Niño.
October Futures Delivery to Precede Sugar Scarcity
Market analysts predict that a global sugar shortage will follow shortly after the surplus created by the October futures delivery. Many exporters of the commodity will tighten their shipments starting next month.
India is considering banning its sugar mills from exporting their produce once the 2024 fiscal season begins. The country’s food ministry said the prohibition will help prevent an El Niño-driven local supply shortage.
Crop production across the board has dropped in India after the country recorded 10% less rain from June to August. Indian mills exported 6.10 million metric tons of sugar this season and 11.10 million metric tons in the previous season.
Thailand also expects an 18.00% drop in sugar exports this coming season after a severe drought devastated its fields.