Don’t bank on the sugar market turning sour yet.

Sure, investors have cause to believe that prices may not any time soon head back above 20 cents a pound – what, with Brazil poised for a bigger cane harvest this year, and the retreat of Covid fears reducing the clamour to stockpile.

But these are not the only dynamics in town. Buyers would be wise not to rely too much on such factors suggesting bargains ahead.

Below par

For a start, Brazil’s sugar output recovery looks like being only partial.

Mills in the country’s key Centre South region should in the newly started 2022-23 crushing season process a bigger cane crop than in 2021-22, when frost and drought curtailed yields.

However, it looks like falling well short of the record 641m tonnes achieved five seasons ago – Conab last week forecast a 539m-tonne harvest this time, up by less than 9m tonnes year on year.

Cane crops retain some weather damage, as evident in the slow start to the campaign. As of mid-April, only 85 Centre South mills had opened for the season, down more than 40% year on year.

Also, many farmers have, thanks to high grain prices, opted for the likes of soybeans and corn, meaning a fall in cane area.

Indian retreat?

What rebound there is in Brazil’s sugar output may be offset somewhat by a decline in India. (Brazil and India combined account for 70% of world raw sugar output.)

US officials have pencilled in a 1.0m-tonne reduction in India’s sugar output in 2022-23 in 35.8m tonnes, raw value, assuming that monsoon rains return to more normal levels from the bumper levels of last year.

The decline could be larger, if India’s ongoing drought stresses cane notably before monsoon relief arrives from next month.

Furthermore, sugar supplies in India and beyond face pressure too from the ramp up in energy prices, which will encourage processors, where possible, to divert more crop towards making ethanol rather than sweetener.

Import demand

In fact, combined Brazilian and Indian sugar exports will be lower in 2022-23 than in 2021-22, US Department of Agriculture reports foresee.

And while top importer China looks like making up for some of that decline, in trimming its purchases next season, a USDA briefing overnight showed, with EU purchases seen easing too, that won’t tip the needle much.

Indeed, Indonesia, the second-ranked importer, is expected to increase its buy-ins.

Recession risk

Of course, it is early days to be reading too much into forecasts for a 2022-23 season which in most countries does not start until October.

And sugar bulls do face market risks – not least the potential for recession, which would likely dent consumer demand and, in hitting energy prices, depress the competition for sucrose from ethanol manufacturers.

However, bears face tests too, with elevated fertilizer prices potentially limiting crop yields further than currently appreciated, and China’s stocks rundown this season likely heralding a leap in imports.

The last time, in 2010-11, China’s stocks fell below levels expected for 2022-23, imports doubled the next season.

It’s not hard to see why investors are pricing raw sugar futures above 18 cents for another year. Weather upsets in Brazil or India could see high prices last much longer.