Last week witnessed a modest rebound in raw sugar prices, as the market observed a shift in India's stance towards ethanol programs rather than allowing exports, according to Lívea Coda, Sugar and Ethanol Analyst at Hedgepoint Global Markets.
"This notion aligns with our previous report, now supported by the government's consideration of an additional diversion of 800kt of sugar still in 23/24," she notes.
Consequently, there's expected to be no additional availability to the commercial flow from India, while stocks are likely to end the year slightly lower but still higher than in the last two seasons.
"In our view, the additional 800kt diversion for sugar would ensure about 31.1Mt of sweetener and thus a final stock of nearly 6Mt. We must remember that the price movement observed due to these rumors did not signify any change in fundamentals; it's merely a discussion about where to place this 'extra' availability," she observes.
The discussion also doesn't alter the optimism regarding the country's 24/25 crop. Despite a possible 800kt diversion to ethanol and slightly lower stocks than previously projected, typical weather conditions favor a bearish outlook. "India is expected to have a 'normal' monsoon this year, according to the meteorological forecast by the private agency Skymet shared last Tuesday. This forecast allows us to expect improved productivity after a challenging 2023," she points out.
In 2023, India received scattered and below-average rainfall that adversely affected agricultural productivity in various regions. According to the agency, rains are expected to be 102% of the average during the main sugarcane development window: June to September.
"Therefore, India may re-enter the export game! But a note of caution: before exporting any volume, it is highly likely that the country will fully resume the ethanol program, diverting about 5.5 Mt of sugar for biofuel production. This would allow India to contribute up to 1.2 Mt to the international trade flow in 24/25 - assuming productivity returns to the three-year average," she speculates.
"Still on the weather front, Brazil's main sugar-producing areas, which received minimal precipitation from December to February, are recovering from drought. Many have returned to historical levels, while others have approached average levels. Although this doesn't erase the damage caused during the offseason, mid- and late-season sugarcane benefits from this weather. This means Brazil also adds to the bearish trend," she believes.
"And furthermore, Brazil's 23/24 season is officially over! It was a record crop, with 654.4Mt of sugarcane crushed, generating 42.4Mt of sugar thanks to a higher sugar mix of 48.87%. The Center-South has proven to be an essential player, with increasing capacity due to more investments in the sector," she emphasizes.
In terms of exports, 34.3 Mt were shipped in 23/24, according to SECEX, facilitating commercial flows and preventing price spikes. Established as one of the most relevant suppliers, all eyes are now on the Center-South's 24/25 crop.
Regarding demand, prices reached 20.5c/lb. In theory, this means that non-producing regions of China felt comfortable buying sugar.
"However, sugar production is progressing well in the country, already 10% higher than last year, with approximately 9.6 Mt. Therefore, it can be expected that, with greater domestic availability, the local premium will be lower, and import parity will not have the same strength. To understand if this trend is true, we need to wait and analyze April and May imports," she considers.
The market saw a modest recovery in raw sugar prices as the Indian government may resume the ethanol program instead of allowing exports, supported by discussions of diverting an additional 800kt of sugar in the 23/24 season.
Despite the potential reduction in stocks, optimism remains for India's 24/25 crop due to the forecast of normal monsoon conditions, which could aid in the recovery of production after a challenging 2023 and allow for exports (if the government consents). Brazil's sugar-producing regions are rebounding from drought, corroborating the current market's bearish sentiment.
As for one of the main bullish supports, China's import parity, it can be imagined that it should weaken as production is showing excellent progress. Thus, the country's import appetite may be reduced in the short term.
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