A brewing shortfall of sugar supply in Asia is lifting the global price of the sweetener, providing relief for farmers and refiners after an extended market slump.
Raw-sugar futures rose 1.2% to 14 cents a pound in New York on Tuesday, extending their advance in 2020 to 6.8%. Sugar prices have outstripped other soft-commodity markets so far this year, and have recovered 33% since falling to a trough of 11 cents a pound in September.
Prices have shot up even further in local-currency terms in India and Brazil, as the rupee and real have weakened against the dollar. This has helped ease the financial pressure on sugar producers in the two countries, after a glut of sugar in India depressed global prices for several years.
Adverse weather conditions for sugar farmers in India and Thailand—the world’s largest and fourth-largest producers respectively last year—have lifted prices in recent months.
Thailand’s sugar harvest, which ends in March, is expected to be significantly smaller than last season’s crop after months of unusually dry weather. Some farmers in the Southeast Asian country have also started growing cassava, a root vegetable, instead of sugar cane, further reducing production.
The U.S. Department of Agriculture forecasts that Thai sugar output will fall by a million metric tons in the 2019-20 season to 13.5 million tons.
“Thailand has had dry conditions throughout the year,” said Carlos Mera, senior commodity analyst at Rabobank. “The impact on the market is just materializing.”
Importers looking to source sugar in India instead of Thailand have struggled because of excessive monsoon rainfall, which led to flooding in Maharashtra and other sugar-producing regions in late 2019.
Sugar refiners are benefiting from the rally because white-sugar prices have risen further than raw-sugar prices, lifting their profit margins. “India’s much-anticipated flood of low-quality white sugars on to the world market has not materialized despite the sugars now being profitable,” said Kona Haque, head of research at commodity trading house ED&F Man.
Brazil will help determine whether sugar prices rise much further. Last year mills in the South American country crushed as much sugar cane as they could into ethanol to meet surging demand for the biofuel among car users. Around 70% of light autos in Brazil are able to run either on pure ethanol or on a mix of ethanol and gasoline, according to commodities brokerage Marex Spectron.
The danger for the sugar market is that higher prices will encourage Brazilian mills to produce less ethanol and more of the sweetener this year. That could contribute up to 4 million tons of additional sugar to global supplies, according to a London-based sugar trader.
There are already signs that traders and investors don’t expect the rally to last. As the price of sugar futures that expire in the next few months has jumped, 2021 contracts haven’t risen as far. That indicates traders think there will be more than enough sugar to meet global demand next year.
Elsewhere in commodity markets on Tuesday, Brent-crude oil prices rose 0.6% to $64.59 a barrel ahead of the U.S.-China trade deal, expected to be signed in Washington on Wednesday.
Write to Joe Wallace at Joe.Wallace@wsj.com
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January 14, 2020 at 07:37PM
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