On Thursday, US sugar #11 rose sharply on fund short covering as traders vie for year-end positioning as experts see El Niño worsening next year.
Sugar futures for March delivery rallied 6.12% to ¢21.86 per pound on December 28, extending Thursday’s 0.34% gain. Analysts expect the momentum to push the soft commodity 0.23% higher to ¢21.91 a pound in the coming session.
The significant gain surprised the market as sugar prices have been on a six-week losing streak. Ramped-up sugarcane harvests in Brazil have continuously pressured the sweetener.
The Brazilian Sugarcane Industry Association (UNICA) reported that improved weather conditions drove production higher at 41.75 million metric tons (MMT) in the first half of December. That marked a 25.20% year-over-year increase, including a 205.00% output surge in Center-South Brazil.
In addition, India’s food ministry ordered local farms to stop crushing sugarcane to produce ethanol in the 2023-2024 supply year. The move aims to boost domestic sugar reserves to prevent a supply shortage amid the arid climate.
Commodity specialists said the plan could add 2.00 MMT to the country’s local supply, which could be enough to mitigate the impact of the prolonged drought. The India Meteorological Department (IMD) reported that rainfall from June to September was 6.00 % below average, the lowest in five years.
As a result, buy-to-cover transactions intensified on Thursday as traders looked to remove stock before prices dipped further.
El Niño to Weigh on Sugar Prices in 2024
Weather experts cautioned that the impact of the El Niño phenomenon may strengthen next year. Such a prospect may disrupt the global sugar supply as the weather pattern often brings heavy rains to Brazil and severe drought to India.
However, agricultural agencies are divided on whether smaller sugar-producing countries can help prevent a deficit. The US Department of Agriculture (USDA) anticipates 2023-2024 global output to lift by 4.70% year-over-year (YoY) to 183.46 MMT.
The USDA also projected a 1.20% annualized climb in human sugar consumption to a record 178.43 MMT. In contrast, it sees global sugar ending stocks for the crop season plunging -13.30% to a 13-year low of 33.68 MMT.
On the other hand, the International Sugar Organization (ISO) predicts global sugar output dropping -1.20% YoY to 174.80 MMT. It also foresees the global sugar market sinking into a deficit of 2.12 MMT.
