Raw sugar prices will rise for a fourth consecutive year in 2022, the first such run since the 1980s.

Prices have been buoyed by factors such as disappointment at prospects for output in India – where cane yields are reportedly poor in Maharashtra and an increasing amount of crop is being directed at ethanol production – and evidence from a series of countries of stronger-than-expected demand.

Can such assessments drive sugar futures to a fifth year of gains? Below, leading commentators give their views on the important market dynamics to watch.

 

Fitch Solutions

We have revised our forecast for 2023 upwards to 19.0 cents per pound from our previous estimate of 17.5 cents per pound.

Our updated forecasts are driven by a less-than-expected export quota announced by India and rising Brazilian ethanol prices, which threatens to cut Brazilian sweetener production. Additionally, this marks a shift in our core view of easing sugar prices in 2023, and we now do not expect prices to begin easing until 2024

India announced a sharp reduction in its sugar export quota for 2022-23, asking millers to export 6m tonnes compared with 11.2m tonnes in 2021-22 and below the 8m tonnes that had previously been speculated.

Demand for Brazilian ethanol has strengthened in Europe due to the war in Ukraine, as countries look to cope with the energy crisis. Consequently, we expect demand for Brazilian ethanol to remain elevated throughout 2023, providing upside support for prices.

 

Goldman Sachs

Sugar prices have seen a strong end to 2022, as excessive rainfall in south central Brazil – a consequence of La Nina – helped slow the cane harvest and hold up crush season.

However, they have now deviated far from oil prices that have sequentially declined on softer Chinese demand and ample Russia supply.

As a result, we see some gap risk lower in the market at the start of 2023, particularly as the risk of fuel tax cuts in Brazil will likely spur lower cane crush as domestic gasoline prices pressure ethanol blend margins.

We forecast 18, 19 and 20 cents per pound for the next three, six and 12 months.

 

ING

The global sugar market is set to see yet another surplus, driven by expectations of stronger output from Brazil, India and Thailand. We believe the surplus environment should limit further upside in sugar prices through 2023.

Global sugar output in the 2022-23 marketing year is expected to hit around 180m tonnes, which would leave it near record levels. Stronger output is largely due to expectations of higher output from Brazil.

This production growth should mean that the global sugar market will see yet another surplus in the 2022-23 season- in the region of 4m tonnes.

This surplus should cap prices although we could see seasonally stronger prices over the Centre South Brazilian off-crop (in the first quarter of 2023). How much strength will really depend on how Indian sugar exports perform.

ING forecast ICE raw sugar futures averaging 18.40 cents a pound in the first quarter of 2023, before falling back to average 17.70 cents a pound in the fourth quarter.

 

International Sugar Organization

Our fundamental view of the global supply-demand situation sees a substantial surplus in the current season, and we anticipate a global surplus in 2022-23 of 6.185m tonnes.

For 2022-23, we project global stocks to rise to 99.734m tonnes, up from 96.835m tonnes at the beginning of the season.

By implication the ending stocks-consumption ratio for 2022-23 has increased to 56.68% from 55.56% at the end of 2021-22.

We maintain our neutral-to-bearish outlook, especially given that the fundamentals in 2022-23 show surpluses for production and exports.

 

Marex

The bullish focus seems to have moved forward from first to second half 2023 – operators seem to be more and more conscious that it is vital that all of the coming crops should be at or above expectations.

White supply is increasing, thanks to Pakistan and India both being mainly exporters of LQW (low quality white). But then the question is why hasn’t the white premium gone down more? Could the white premium, in falling from about $200 per tonne to about $100 per tonne have uncovered a layer of demand?

All this means that people are reducing their estimates of the surplus which should occur in second half 2023 if all crops are on target.

And that in turn could be linked to scattered reports of higher consumption, which in turn fits in with the theory that consumption really did go down during the peak of the Covid period, but has now bounced back and, perhaps, caught up a little of the “lost growth” which should have occurred during lockdowns.

 

Rabobank

Sugar prices could weaken, as Brazil will add sugar to the global market.

2022 will end with a situation of relative tightness at the front of the curve, but Brazilian cane volumes should recover in the 2023 harvest, given that rainfall in 2022 so far has been significantly better than in 2021.

We are still wary of an active, though weakening, La Nina event that will potentially last until the end of the first quarter of 2023.

But the start of the rainy season… has been great across much of the cane belt. Furthermore, at the time of writing, the ethanol parity is trading 3 cents below sugar prices, which leads us to believe that sugar will likely claw a larger share of cane next year.

This could lead Brazil to add 3m-4m tonnes to the global surplus-deficit… [which] should see a surplus of 4.6m tonnes (October to September basis).

Rabobank forecasts New York raw sugar futures averaging 16.3 cents a pound in the October-to-December quarter of 2023.

 

GrainPriceNews view

There is certainly scope for some weakness ahead in sugar prices, with Brazil’s 2023-24 cane crush likely to get off to a strong start, given the boost to cane yields from recent rains, and the potential for some carryover “bisada” cane too from the wet-interrupted close to 2022-23.

Still, the potential for downside looks limited, given the sector’s structural need for investment to boost production.

The story on sugar has changed from one of large gluts, a reflection of the hit to demand from the likes of health concerns, to one where consumption is proving resilient, yet output is constrained by years of underinvestment.

This dynamics will underlie price volatility which will be instilled, as ever, by the likes of Centre South weather, Indian export dynamics and the strength, or otherwise, of ethanol prices.