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Sugar Building Up To An Awful Letdown

Sugar Building Up To An Awful Letdown

Posted October 3, 2022
Stephen Maass
The Hightower Report

While it has avoided a sharp downside move since late July, sugar has had trouble sustaining any recovery move since reaching a high for the year in April. It held in a tight range from mid-August to mid-September and has seen coiling action over the past two weeks. Recent supply news has been bearish, and outside market action has been negative. This could be setting sugar up for another downside move.

India Sugar Production

A delayed start to harvesting and crushing and the impact of La Niña left Brazil’s Center-South sugar production 8.4% behind last year’s pace by mid-September. Brazil’s government put a cap on state fuel taxes, which reduced ethanol’s price advantage to gasoline and weakened demand. Center-South mills have shifted their crushing activities towards more sugar production and less ethanol over the past few months.

As of Friday, India’s monsoon rains were 6% above the long-period average, and the monsoon had made a slower than normal withdrawal from the mainland. This should benefit India’s cane production for the 2022/23 and 2023/24 seasons. India is ramping up its ethanol production, but their 2022/23 sugar production should come in close to last season’s record high, and this could pressure the government to raise its export limit, currently at 8 million tonnes.

Thailand’s production outlook continues to improve after their back-to-back droughts in 2019/20 and 2020/21. Most of the output increase will likely be diverted to exports.

Global sugar supplies are in decent shape, while the slump in energy prices is likely to keep ethanol demand subdued. This leaves the sugar market with few bullish supply/demand factors to provide support and vulnerable to a sharp downside move during the early part of the fourth quarter.

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