Sugar Market Analysis: Brazil’s Supply Concerns Drive Price Outlook

Summary: Brazil's Center-South region, the world's key sugar-producing area, is facing significant production challenges due to adverse weather conditions. With a projected deficit of 2.3 million tonnes in 2024-25 and early mill closures, the market is showing bullish trends despite an overall year-on-year price decline of 19%.

Supply Deficit Projections

Citigroup's latest analysis presents a sobering outlook:

• 2024-25 crop year: 2.3 million tonnes deficit
• 2025-26 crop year: Expected to improve but still showing a 1.3 million tonnes deficit

Brazil's Production Challenges

The Center-South Province, Brazil's sugar production heartland, is experiencing significant setbacks. According to UNICA (Brazil's industry group), the region has seen:

• A 59.2% drop in production to 898,000 tonnes in early November
• A 52.8% decline in sugarcane crushing to 16.46 million tonnes
• Both figures falling below S&P Global Commodity Insights' market expectations

Contributing Factors

Several factors are contributing to the production shortfall:

1. Weather Impact:
   • Prolonged drought followed by heavy rainfall
   • Early mill closures due to November rains
   • 8.8% decline in productivity
2. Production Allocation:
   • Only 43% of sugarcane directed to sugar production (down from 50% last year)
   • Increased allocation toward ethanol production

Revised Production Forecasts

CONAB, Brazil's national supply firm, has adjusted its projections:

• Total sugarcane crop: 678.67 million tonnes (down from 689.83 million)
• Center-South production: 616.86 million tonnes (reduced from 626.17 million)
• Total 2024-25 production: 44 million tonnes (decreased from 46 million)

Industry Impact

Wilmar International's analysis suggests a concerning trend:

• Current sugar mill closures: 38
• Projected closures: Could exceed 100
• Earlier than usual shutdown due to wet weather
• Normal operations typically resume in March, weather permitting

Conclusion

The sugar market is poised for a potentially volatile period ahead. The combination of weather-induced production challenges in Brazil, reduced crushing capacity, and significant projected deficits suggests sustained upward pressure on prices in the short term. For traders and industry stakeholders, maintaining close monitoring of Brazil's weather patterns and mill operations will be crucial for informed decision-making in the coming months.

The situation underscores the increasing importance of diversified sourcing strategies and robust risk management practices in the global sugar trade. As we move through 2024, the market's response to these supply constraints will be a critical factor in price formation and trade flows.