The global sugar market faces supply risks, such as a lack of rain and port congestion in top exporter Brazil, that may wreck the current equilibrium with low stocks reducing its resilience.
The New York Sugar Week, an annual gathering of the sugar industry, where a series of seminars and an industry dinner attract participants from around the globe, took place this week against the backdrop of balanced supply and demand conditions.
Sugar prices have been hovering around 19-20 cents per pound for weeks now, since falling heavily late last year from around 28 cents amid a surprisingly positive end-of-crop in Brazil that offset shortfalls in India and Thailand.
Current prices are not too bad for sellers or buyers. Demand is good and production in key regions is recovering. However, experts, who have spoken during the global industry event this week, warn the market's stability is tenuous.
'Sugar Stocks Remain Tight'
"The bigger picture is that global sugar stocks remain tight," said Mauro Angelo, chief executive of the world's largest sugar trader, Alvean. "Stocks-to-use ratio is at 37%, the smallest since 2010," he said.
"The market will be exposed to the logistic performance in Brazil", said Jose Orive, executive director of the International Sugar Organization (ISO). The risk is, there could be a repetition of the tight loading situation at Brazilian ports in 2023 as the country increased its share of global sugar exports from 70% to 80% with the absence of India in the export market.
Brazil and India together account for more than 40% of global sugar production.
Marcelo de Andrade, managing director for soft commodities at Chinese trader COFCO International, also flagged weather as a risk factor.
"If anything goes wrong (with the weather) in India that could be explosive for the market," he said.
In short, if everything goes well, the market will remain stable, but any problem will send prices higher.
The over-dependence on Brazil to supply the market is seen as a major risk.
Tom McNeill, managing director at Green Pool Commodity Specialists, said both the current dry and hot weather there and the port logistics were a concern.
"Any problem with Brazil could provoke quite a reaction in prices," he said.
Sugarcane Planting
COFCO's Andrade said the company just suspended sugarcane planting in Brazil, where it operates four mills, due to low soil moisture. "We need rain in May, June, otherwise the crop will be smaller," he said.
Brazil is now experiencing a heat wave with most central areas posting temperatures as high as 34 Celsius, with no rains. There is forecast for some precipitation late in May, but not much.
McNeill said the dry weather is boosting cane crush and sugar production in the early stages of the Brazil crop, which could mislead speculators into increasing their short position in the market, pushing prices lower.
"There is a substantial risk for the second part of the harvest," he said.
"Unless we are terribly wrong about the Brazil crop there should be little reason for sugar prices to remain at 20 cents," said Alvean's Angelo.
