REPORTS

Sugar prices raced up to 14-month high Friday after Citigroup raised its global 2019/20 sugar deficit estimate to -7.6 MMT from a previous estimate of -7.0 MMT as sugar crop risks persist in India and Thailand. Sugar prices added to their gains Friday after the USDA in Friday's WASDE report cut its U.S. 2019/20 sugar production estimate by -1.5% to 8.158 MMT from a Dec estimate of 8.280 MMT.

Sugar prices were already in a rally-mode after Paragon Global Markets on Thursday forecast that the 2019/20 global sugar deficit will reach -10 MMT, well above ISO's estimate of -6.1 MMT, due to lower sugar production in Mexico, U.S., and Thailand.

Sugar also garnered support from expectations for China to boost its imports of ethanol. China's National Development and Reform Commission plans to roll out a mandate to raise biofuel use this year. According to USDA data, China will need 18 MMT of ethanol a year, four times its current 4.2 MMT output, to mandate the use of E-10 (a 10% ethanol-gasoline mix) to satisfy its 3.6 million bpd gasoline requirement. Increased ethanol demand will encourage refiners to use more sugar cane for ethanol production, thus reducing sugar production and providing support for sugar prices.

A negative factor for sugar is a faster pace of sugar-crushing in India after India's Sugar Mills Association reported Jan 2 that India Oct-Dec sugar production was down -30% y/y to 7.8 MMT, which was an improvement from last month's data that showed Oct-Nov sugar production fell -54% y/y to 1.89 MMT.

An extreme long position by funds is a potential bearish factor for London sugar prices after last Friday's weekly Commitment of Traders (COT) data showed that funds boosted their net-long London sugar positions by +2,601 contracts in the week ended Dec 31 to a 13-month high of 13,468 contracts. The large long position could provide fuel for long liquidation pressure.

Big Picture Sugar Market Factors: World sugar production in 2019/20 (Apr/Mar) will fall -2.3% y/y to 172 MMT, after the +0.6% y/y rise to a record 185.2 MMT in 2018/19 (ISO). The world sugar balance in 2019/20 will tighten to a -6.1 MMT deficit from the +1.7 MMT surplus seen in 2018/19 (ISO). Sugar production by Brazil, the world's largest sugar producer, in 2019/20 will climb by +17.4% y/y to 34.1 MMT, after production in 2018/19 (Apr/Mar) fell -17.2% y/y to an 11-year low of 31.4 MMT (Conab). Sugar production by India, the world's second largest sugar producer, in 2019/20 will fall -15% y/y to a 3-year low of 28 MT due to drought and a delayed monsoon season (India's National Federation of Cooperative Sugar Factories Ltd).

contact us