Sugar: How la Niña Can Affect Production in the South Center of Brazil and the Global Market
Despite the recovery in sugar prices in recent days, following the release of Unica's figures, expectations are still for a slight surplus in the 24/25 harvest, especially with the better prospects in the Northern Hemisphere and the continuation of high production in Brazil (although lower than in 23/24). Current weather patterns also point to a more stable year.
La Niña’s impact on the sugar market is currently expected to be mild, as its intensity has been revised downwards, with it being active between September and February.
The main suppliers
Major suppliers such as Brazil, India and Thailand have a low correlation between rainfall patterns and La Niña occurrences. Therefore, a less intense event suggests a more neutral outlook, which could allow supply to recover and lead to milder prices.
Global sugar demand is expected to grow by around 1%, with a modest surplus expected in 2024/25; monitoring China’s buying behavior is crucial, as increased domestic availability could reduce imports and contribute to a bearish market outlook.
After two weeks of falling sugar prices due to a more positive outlook in the Northern Hemisphere, raw and white sugar contracts have been on the rise since last Thursday (25), approaching 19 c/lb for raw sugar.
According to Lívea Coda, Sugar and Ethanol analyst at Hedgepoint Global Markets, prices were boosted by lower-than-expected Brazilian harvest figures, following the release of Unica's figures on the 25th.
“However, the medium-term scenario remains more bearish. In Brazil, the Center-South should still achieve good sugar production in 24/25, and countries such as India and Thailand may have favorable weather this year, which should allow for higher production,” she notes.
What does NOAA say about climate forecasts?
Data recently released by NOAA - National Oceanic and Atmospheric Administration indicate an increased probability of an active La Niña starting in August (70%), but with a higher probability between November and February (78%).
“This moment puts the spring and summer of the Center-South (CS) region of Brazil in the spotlight, as it coincides with the sugarcane development window. In addition, winter and the Northern Hemisphere crushing season would also be at their peak, so it is also worth monitoring,” she ponders.
“However, analyzing the correlation between precipitation patterns and ENSO occurrences, it seems unlikely that La Niña will significantly affect the Center-South region of Brazil. It would take a particularly strong climate event to cause drier conditions in this area. The same cannot be said about temperature. Since its correlation is stronger, we could expect a cooler summer,” explains the analyst.
