Sugar Struggles to Find Sweet Spot Between Crude Oil and Food


  • Higher output threatening to unravel one of the best commodity rallies of 2022/23
  • Raw sugar is down almost 5% for March; slide could reverse just like in Feb.
  • Traders point to weaker output, rising focus on ethanol in No. 2 producer India
  • Benchmark raw sugar has to only hold above 20.70/lb for bull wave to resume 

After a sweet five-month ride, those bullish on raw sugar are again facing red signals from higher production threatening to unravel one of the best commodity rallies of 2022/23.

Good or active cane harvests in Brazil to Thailand are driving some investors to dump their long positions in sugar, triggering profit-taking just like in February. Last month’s red blip in sugar prices did not last due to concerns about weaker output in No. 2 producer India, which offset supply overruns elsewhere. This slide could soon reverse as well.

With a third of March trading done, benchmark raw sugar on New York’s ICE, or InterContinental Exchange, is down almost 5% for the current month, as it hovers at just under 21.15 cents a lb at the time of writing, compared with February’s close of 22.08.Raw Sugar 4-Hour Chart

And despite the month-on-month drop, the price remains significantly higher than the 17.68 cent closing for September, which marked the directional shift in raw sugar resulting in the rally of the past five months.

Global production of sugar remains a mixed picture, and that could lessen the impact of the current price slide. Panelists at the International Sweetener Colloquium in La Quinta, California, on Feb. 27 gave varying accounts of the world sugar outlook in a report carried by the trade journal Food Business News.

The crop in India, the world’s second highest sugar-producing country behind Brazil, is expected to fall short of earlier 2022-23 production forecasts. Several other major producers, except for Thailand, also were projected to have lower year-over-year production levels, the panelists said.

Thus, regardless of a perceived global surplus in supply, sugar prices are expected to remain elevated, although not necessarily at current six- or seven-year highs, the panelists said.

One of them, Vincent O’Rourke, trader and market analyst at C. Czarnikow Sugar Inc., said any perceived glut in sugar seemed manageable versus global consumption at almost five million tonnes, notwithstanding weather risks.

The other offset to any oversupply is ethanol.

Weakness in crude prices limited gains in sugar after this week’s 6% slump — at the time of writing — in U.S. West Texas Intermediate undercut ethanol prices, triggering worries that the world’s sugar mills may divert more cane crushing toward sugar production than ethanol. The United States has a 10% mandate for ethanol blending in its automotive fuels, while Brazil’s requirement is more than double that, at 22%. India has a 20% target set for 2025/26.

India produced a record amount of sugar in 2021-22, but through its country’s incentivization program, mills began diverting more of its cane crop to ethanol production, said Sergey Chetvertakov, senior associate at S&P Global Commodity Insights. And after an extended monsoon season, its 2022-23 crop is expected to produce disappointing yields. O’Rourke of Czarnikow Sugar adds:

“The big dog at the table has been India. The rumors are the crop will be disappointing, and its conversion commitment to ethanol is interfering, so it’s possible India won’t meet its export forecast.

The world has become accustomed to India’s sugar exports, but that won’t be the case in five years with increasing ethanol production likely to continue.”

Traders, meanwhile, looked to the potential 2023-24 large crop in Brazil to fill in the anticipated gap left by India. Though the country uses about 55% of its sugar cane to produce ethanol, prices are not competitive for ethanol production, and ideas were the crop would prioritize sugar production unless another situation similar to the invasion of Ukraine occurred, which would swing the spotlight to generating fuel supplies.

Despite being more competitive than ethanol, sugar production in Brazil offered weaker price margins when compared to other crops, which provided a bullish element.

“Unless we see prices come up, then no one will look at cane as a smart Investment,” O’Rourke said. “We really need higher prices, especially for Brazilian mills, so they can increase their cane acres and sugar production.”

Thailand, another leading global sugar producer, and exporter, was forecast to increase sugar production from a year earlier. But after the previous year’s devastating crop, the current production outlook was viewed more as a bounce back than an upward trend.

Adding to the strain of current global supplies was the nearly one-million-tonne shortage in sugar production from the European Union, the world’s largest supplier of beet sugar.

A mild winter followed by extremely hot and dry summer conditions created a stressful environment for its crop. But the situation was further exacerbated by a scourge of beet yellow virus, likely linked to the EU’s recent ban on neonicotinoid insecticides, which have been blamed for killing bees. More tolerant and pest-resistant plant breeds were being developed but were not yet available, so analysts expected challenging seasons were still ahead for European beet sugar producers.

So, what are sugar’s technical charts saying?

They look positive, too, according to Sunil Kumar Dixit, Chief Technical Strategist at Notwithstanding the March slide, Thursday’s run-up in New York’s front-month sugar futures contract toward 20.70 cents puts the market on track to the important positive target of 21.25 on the four-hour chart, said Dixit. He adds:

“This puts us on track to a return of the intraday bullish channel, reinforcing chances of a higher trajectory in coming sessions towards the next target of 21.70.”

Dixit also noted that the 50-EMA, or Exponential Moving Average, on the four-hour chart continues to form a back wall of support for raw sugar.

“For the continuation of the bullish wave, all that’s required is a hold of above 20.70. That’s already being achieved as we speak.”



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