SUGAR SWEET SPOT


2022 has been a peculiar year with the pandemic receding only to be replaced with war and global economic turmoil. Inflation, which has been sleeping for much of the past 15 years, has suddenly awakened causing Central banks to raise interest rates.


This has seen the US Dollar surge higher as uncertainty prevails and many predict the world will go into recession. As with most commodities the sugar market has been buffeted by the macro but traders have also had to contend with weather issues, political uncertainty, volatile energy prices and demand concerns. Prices have remained volatile with the funds often dictating direction although, until recently, the trend has been weakening prices.


As usual two producers catch all the headlines. Brazil and India have been vying to be the world’s largest producer of sugar for the past couple of years. While Brazilian production has dropped due to drought India’s has surged due to good weather. Brazil’s CS has slowly recovered from a once in a generation drought that hit the south of the country last year. Sugar production collapsed from a record production in 2020/21 to just over 32 million tonnes. This season the cane has marginally recovered as rains have returned but total sugar production is unlikely to be significantly more than last season. Ironically, too much rain has hampered field operations recently.


It is a different picture to the one before the harvest started when most mills were gearing up to produce ethanol as crude prices surged to their highest level since 2008 as Russia invaded Ukraine. However, crude prices fell back, President Bolsonaro approved tax cuts on fuel and the BRL weakened so that sugar became more profitable than ethanol. It then became the case of how much cane was available and whether it could be crushed in a timely manner. Fast forward to the middle of November and the last Unica data suggests last season’s total production will be bettered but probably by less than 1 million tonnes. Eyes now turn to the next harvest which is only some 4 ½ months away. With the return of the rains and decent sugar prices the next crush looks likely to be much better and could get within striking distance of the record 2020/21 season when the CS produced just over 38 million tonnes. However, much will depend on ethanol demand and, of course, the Brazilian currency. The election of Lula da Silva as President may mean the Government economic policy may change compared with Bolsonaro’s.


8 | ADMISI - The Ghost In The Machine | Q3 Edition 2022


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