JULY TO SEPTEMBER 2024

NEW YORK NO 11 PRICING UPDATE

The New York (NY) No 11 front month contract, October 2024, has experienced a rather volatile trading environment over the past three trading months. The most actively traded contract across the NY No 11 board, commenced the third quarter of 2024 on the front foot, trading to an intra-trading high of 20.78 US c/lb on 2 July 2024. Unfortunately for producers, the period of price appreciation during July 2024 was short lived with the front month contract trading to an intra-trading day low of 18.55 US c/lb on Friday, 19 July 2024, settling the day at 18.66 US c/lb. The NY No 11 October 2024 contract continued on a downward trajectory during August 2024, with the contract trading to an intra-trading low of 17.52 US c/lb on 21 August 2024. The move to lower ground was not fundamentally justified according to market participants, who stated that the movement in the market was driven by a lack of news, rather than a change to the fundamental narrative. September 2024 has been a much more constructive month for NY No 11 contracts from a value perspective. The front month contract experienced a welcomed appreciation in value, trading to an intra-trading day high of 20.15 US c/lb on 17 September 2024, which represented the contract’s highest traded value since 9 July 2024. The appreciation in value during this period was attributed to concerns related to reduced Centre South (CS) Brazil production within the 2024/2025 season. 

The spread valuations between NY No 11 contracts provides the market with insight regarding the physical requirements for sugar during different periods in the year/season. For the most part of 2024, the market has been trading at an inverse, i.e. the front month contract, trading at a premium to the further dated contracts. Effectively, when a market trades at an inverse, the physical requirement for sugar is near dated. However, when analysing at the spread valuation between the NY No 11 October 2024 contract and the NY No 11 March 2025 contract, the market has been trading in a carry i.e. the near dated contract is trading at a discount to the further dated contract. Based on the spread evaluation between NY No 11 October 2024 contract and the NY No 11 March 2025 contract, the market is effectively signalling a greater requirement for physical sugar at a later stage in the year/season. 

Based on Tuesday, 17 September 2024 settlement prices, the NY No 11 October 2024 contract trades at a 39-point discount to the NY No 11 March 2025 contract.  Market participants have noted that the carry value between NY No 11 October 2024 contract and the NY No 11 March 2025 has been below the carry value in previous seasons which has brought into question the amount of sugar that will be carried by producers for later shipment.   

Market participants have suggested that the volatility in the market has been amplified by the speculators. The latest Commitment of Traders (CFTC) reported that speculators held a net short position of 19 740 lots as of 10 September 2024. The latest report displayed an increase of 11 005 lots in their short position against their previous position. Market participants have stated that in the short-to-medium term, developments regarding the 2024/ 2025 season CS Brazil Crop, the Brent Crude market, the Brazilian Real and US Dollar Risk Sentiment will drive the narrative of the speculators. 

Global Sugar Market Fundamental Update 

Market participants have placed a particular focus on developments regarding the 2024/2025 season (April 2024 – March 2025) CS Brazil production campaign, given the markets dependence on Brazilian supply. In late August 2024, the market received news of cane fires in CS Brazil which sparked concerns regarding the availability of Brazilian sugar.  According to S&P Global Commodity Insights, the fires were estimated to impact between 6 mmt to 8 mmt of cane. Market participants have stated that most of the burnt cane will be harvested, however the harvest will be executed during a suboptimal period during the crushing campaign which will result in yield, quality, and sugar mix being negatively impacted. Market participants further noted that the cane fires could have a knock-on impact on the 2025/2026 season.  

The Brazilian sugarcane industry (UNICA) report for production data for the second half of August 2024, was released on Friday 13 September 2024. Production data for the second half of August 2024, was largely disappointing with 3.258 mmt of sugar (down 6% from the previous season) being produced from 45.067 mmt of cane with a sugar mix pegged at 48.85% (pegged at 50.75% last season). It is to be noted that UNICA confirmed that the data released in the report did not effectively reflect the impact of the cane fires towards the end of August 2024. On a year-to-date basis (April 2024- August 2024), sugar production totalled 27.169 mmt (up 3.9% from the previous season) from 422.61 mmt of cane with a sugar-mix of 49.15%.  

Market participants have been keeping a close eye on the 2024/2025 season CS Brazil sugar-mix given the investment in additional crystallization capacity (estimated between 2 mmt -3mmt) within the industry. At the start of the 2024/2025 season, most market participants had estimated a sugar mix ranging between 50 %- 51%, however, the year-to-date sugar-mix has failed to meet the market expectation which has resulted in market participants reassessing their 2024/2025 season production estimates for the world’s largest sugar producing nation. S&P Global Commodity Insights have revised their production estimate for the 2024/2025 season to 40.01 mmt with a sugar mix of 49.31 % from 606 mmt of cane. Global Data on the other hand, have estimated production for 2024/2025 season at 39.9 mmt with a sugar mix of 49.4% from 603 mmt of cane. It should be noted that both these highly reputable research houses had previously estimated sugar production to exceed 42 mmt for CS Brazil in the 2024/2025 season.  

The production picture for the world’s second largest sugar producer, India, has been aided by conducive weather conditions. According to Global Data, the monsoon progression has been positive particularly in key growing regions of Maharashtra and Karnataka. Market participants have stated that despite a 7% decline in cane area, gross production for India in the 2024/2025 season (October 2024-September 2025) is estimated to exceed 33 mmt (including diversions to ethanol production).  The robust production has been attributed to the promise of good yields due to the positive rainfall. 

Market participants were pleased to receive news regarding India’s ethanol policy for the 2024/2025 season. The Department for Food and Public Distribution, on 29 August 2024, confirmed that mills will be allowed to produce ethanol from molasses and cane juice during the 2024/2025 season. The Department further stated that periodic assessments of diversion towards ethanol production would be conducted to ensure that the market has sufficient availability of sugar throughout the year. Majority of market participants interpreted this announcement as constructive for the market, as the Department did not place a quantitative limit on how much cane can be diverted to ethanol production. On the back on this announcement, market participants have pencilled-in between 4.5 mmt to 4.0 mmt of diversion towards ethanol production. Based on the estimated diversion to ethanol, total sugar production is likely to range between 28.5 mmt to 29 mmt in the 2024/2025 season   Market participants have stated that due to ethanol policy announcement, the probability of Indian sugar hitting the export market has been drastically reduced – sweet news for the rest of the worlds sugar producers!

Thailand’s sugar production for the 2024/2025 season (October 2024-September 2025) has also been impacted by positive weather events. According to market participants, rainfall has continued to maintain pace with the five-year average up to the end of August 2024. The Thai industry body, Office of the Cane and Sugar Board (OCSB), released an official cane crop estimate for the 2024/2025 season in August 2024 - the cane crop is estimated at 92 mmt up 12 mmt from the 2023/2024 season. Sugar production for the 2024/2025 season is forecast to exceed 10 mm from the 8.8 mmt produced in the previous season.  While market participants have acknowledged the positive impact the weather has had on the cane crop, they have also attributed an increase in acreage estimated at 10% as a contributing factor to the increase in the cane crop. According to Global Data, the increase in acreage has been attributed to the attractive cane prices that cane farmers received in the 2023/2024 season. 

The OCSB also commented on the initial cane price for the 2024/2025 season which they expected to be slightly below the price received during the 2023/2024 season, due to the drop in world prices. The OCSB estimated that the farmgate cane price will likely be set at THB 1 200/ton at a 10% sucrose recovery level. It was noted by market participants that at this cane price, alternate crop such as cassava, offers farmers a slightly better commercial prospect.  

Production within the European Union (EU) and the United Kingdom (UK) is also expected to increase in the 2024/2025 season (October 2024-September 2025) due to positive weather conditions and increased beet acreage. Market participants have stated that weather conditions in August 2024 have been supportive for beet development across the beet belt with dry weather and sunshine following the wetter-than-normal conditions since the start of 2024. Equally important for beet development, market participants noted that the harmful yellow virus seems to have been avoided which has increased the possibility of above-average yields been achieved in the 2024/2025 season. On the back of this constructive news (not so constructive for countries with export interest in the EU and UK), market participants have forecast production in the EU and UK to increase to 17.1 mmt in the 2024/2025 season from the 16.1 mmt produced in the previous season. 

The production picture for the United States of America (US) has been painted with more constructive strokes for the 2024/2025 season (October 2024-September 2025) by the United States Department of Agricultural (USDA). The World Agricultural Supply and Demand Estimates (WASDE) report released by the USDA in Augst 2024, displayed a more comfortable supply scenario for the US. The USDA raised both beet and cane production estimates for the 2024/2025 season which is forecast at a record high of 8.6 mmt raw value. On the consumption side of the equation, the USDA has a made a slight downward revision to consumption for the 2024/2025 season. Market participants have stated that the increased production estimate, and lower consumption estimate, has resulted in a very comfortable ending stock-to-use ratio of 15.9% for the 2024/2025 season. 

Market participants further noted that the projected US balance sheet for the 2024/2025 season will likely result in lower import volumes into the US particularly from Mexico. Given the expected recovery in the Mexican 2024/2025 season (October 2024-September 2025), forecast to exceed 5.00 mmt, market participants have signalled the possibility of Mexican sugar returning to the world export market after a season of absence. It should be noted that Mexican sugar production in the 2023/2024 season (October 2023- September 2024) was hampered by extreme drought conditions which has resulted in the lowest sugar production numbers in the past 16 years.  

While market participants have forecast increased production in Thailand, EU and UK, US and Mexico, the Australian sugar industry’s production picture for the 2024/2025 season has been brought into question due to heavy rains during the cane crushing period and a prolonged labour strike. As at 18 August 2024, total cane crush was approximately 1.5 mmt behind the previous season due to the adverse weather and prolonged labour strike. According to Global Data, while the industry has reduced the cane crop estimate to 30.8 mmt for the 2024/2025 season, sugar production is forecast at 4.1 mmt raw value due to better yields. Global Data further stated that there is downside risk to the projection estimate if the crushing campaign is further delayed and the harvest is extended.    

Fundamentally, the market is forecast to trade in surplus terrain during the 2024/2025 season (October 2024-September 2025), primarily driven by rebounding production in key growing regions in the world. S&P Global Commodity Insights have forecast a surplus of 3.89 mmt in the 2024/2025 season while other market participants have estimated a much more balanced supply and demand scenario for the 2024/2025 season. Market participants have however flagged the potential for the CS Brazil 2024/2025 season crushing campaign to be impacted by lower yields towards the end of the crushing campaign due the damage caused by the fires and the drier than-normal weather conditions. Given the markets dependency on Brazilian supply, lower than expected production from the world’s largest sugar producers will ultimately result in a much tighter global sugar balance sheet and trade flows. Could a catastrophic end to the 2024/2025 season CS Brazil campaign pave the way for a rebound in New York No 11 prices? The smart money would suggest so, let’s hope that the speculators agree with sound logic!