Sugar Prices Retreat as Crude Oil Decline Sparks Ethanol Production Shift Concerns

October NY world sugar #11 (SBV24) fell -0.31 (-1.61%) to a 1-1/2 week low, while Oct London ICE white sugar #5 (SWV24) dropped -3.80 (-0.71%). The decline in crude prices (CLV24) to an 8-3/4 month low pressured sugar markets, as weaker energy costs may boost ethanol production and divert sugarcane toward biofuel rather than sugar, potentially increasing global supply.

Despite this week’s losses, sugar prices had rallied to 1-1/2 month highs the previous week, driven by extreme weather in Brazil. Drought and record-breaking fires in Sao Paulo, Brazil’s top cane region, damaged crops and disrupted production. Orplana reported 2,000 fires affected 80,000 hectares of cane, with Green Pool estimating 5 MMT of cane losses. Czarnikow cut its 2024/25 Brazil Center-South production forecast to 39.2 MMT from 40.0 MMT, while Covrig Analytics revised the global deficit upward to -600,000 MT from -300,000 MT.

The International Sugar Organization (ISO) forecast a 2024/25 global surplus of 3.58 MMT, larger than the 2023/24 deficit of 200,000 MT. Meanwhile, Brazil’s Conab reduced its 2024/25 Center-South production estimate to 42 MMT from 42.7 MMT due to lower yields. India’s Food Ministry lifted ethanol production restrictions for the 2024/25 year, extending export limitations through November. India has restricted sugar exports since October 2023, allowing just 6.1 MMT in 2022/23, down from 11.1 MMT the prior year.

Higher Brazil production is bearish, with Unica reporting a 5.4% year-on-year increase in Center-South sugar production to 23.91 MMT in the first two months of the 2024/25 season. Conversely, favorable monsoon forecasts for India—777.6 mm rainfall through September, 8% above average—suggest strong domestic production. The Indian Sugar and Bio-energy Manufacturers Association (ISM) noted 2023/24 reserves of 9.1 MMT and a surplus of 3.6 MMT, with 2024/25 production projected to fall 2% to 33.31 MMT.

Thailand’s record April temperatures, which damaged crops and reduced cane yields to a 13-year low, provide support. Despite this, the government forecast 2023/24 production at 8.77 MMT, exceeding earlier mill estimates. The USDA projected a 1.4% annual increase in 2024/25 global production to a record 186.024 MMT, with ending stocks falling 4.7% to 38.339 MMT.

Skepticism surrounds India’s ability to ramp up exports amid ongoing restrictions, while Brazil’s recovery and Thailand’s output gains temper upside potential. Energy market trends and monsoon patterns now dominate near-term price direction.

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