The outlook for sugar has turned bearish with sugar production being projected higher by 2 per cent year-on-year during the current global marketing year (May 2023-April 2024). 

Though drier weather conditions in Brazil and reports of fires in some growing regions will likely force shorts rushing to cover positions, analysts see any drop in the Latin American nation being offset by India, Thailand, China and Mexico. India’s above-normal rainfall has added to the downward pressure. 

A more clear indication for the bearish trend stems from the money managers increasing their short positions in the commodity. Research agency BMI, a unit of Fitch Solutions, said the shift in market sentiment is evident in the Commitment of Traders data from the Commodity Futures Trading Commission.

Rise in shorts

According to ING Think, the financial and economic analysis wing of Dutch multinational financial services firm ING, speculators increased their net short in raw sugar futures traded on the InterContinental Exchange (ICE), New York, by 18,327 lots over the last reporting week to 27,014 lots. 

BMI said at the beginning of 2024, money managers held a net long position in ICE sugar futures and options of 23,823 contracts. “This peaked at 90,948 contracts on April 2, driven by supply concerns related to the impact of El Niño on production across South-East Asian markets. However, since April 2, the market sentiment has turned sharply bearish,” it said. 

By August 13, money managers completely unwound their net long position and are now holding a net short position of 6,084 contracts. “This is given the improved supply expectations and easing crude oil prices fuel bearish sentiment,” said the research agency.

USDA forecast

In its short-term outlook and analysis, the Food and Agriculture Organisation, an arm of the UN, said international sugar prices generally declined since reaching their 12-year highs in September 2023, and in May 2024, they dropped to their lowest value since January 2023. The price declines were mostly related to improved global supply prospects, it said.

The United States Department of Agriculture (USDA) said in its “Sugar: World Markets and Trade” report that global sugar production is forecast up by 2.5 million tonnes (mt) to 186 mt. 

“Consumption is anticipated to rise to a new record with growth in markets such as India and Pakistan. Exports are forecast lower due to reduced shipments from Brazil, India, and Thailand. Stocks are forecast lower as reduced stocks in Thailand are projected to more than offset a rise in stocks in India,” it said. 

BMI caution

BMI said production issues and export restrictions in India have, however, provided a floor for global prices throughout the year, countering the downside effects of a strong Brazilian harvest.

Still, in response to the substantial downward pressure on prices observed throughout the first half of 2024, BMI has cut its forecast for the 2024 average front-month ICE-listed sugar price from 20.8 US cents a pound to 19.6 cents. “On August 16, 2024, front-month sugar futures closed at 18 cents, marking a year-to-date decline of 13.7 per cent,” it said.  

But BMI cautioned that the Indian government has yet to announce its export policy for the 2024-25 season. “If it decides to maintain current export restrictions, we expect global prices to find support,” said the research agency.

Sugar prices surged during 2021-2023 on concerns over supply shortages, particularly due to issues in India and Brazil, and the impact of El Nino on Asian supplies. However, with El Nino ending in April, the situation has turned downhill for sugar.