Sugar closes at a one week low – Brazil increased its output

May NY sugar futures settled down -0.26 or -2.49%. May London white sugar didn’t trade Monday because of the closedown for Easter Monday holiday.

On Monday, NY rates dropped sharply to a one week low. The pressure on the commodity came after the announcement of Archer Consulting. According to it, Brazil 2020/21 output may jump +35% y/y to 35.8 MMT and 2020/21. The consultancy also noted that Brazil’s ethanol production would decline by -20% as the recent fall in crude prices will assist Brazil’s sugar mills in diverting more cane crushing to make sugar rather than ethanol. Ethanol is pure alcohol made by using a fresh cane or by a fermentation process. Glucose from the plant converts into ethanol and carbon dioxide. 

The commodity rates continue to drop by the concerns about more limited demand. It was caused by restaurant closures due to the Coronavirus pandemic. 

Commerzbank cut its NY sugar price estimate for quarter 4 2020 to 12 cents/lb from 15 cents/lb in February, mentioning the drop in crude oil prices. The recent steep decline in crude oil prices undermined ethanol rates as well. It may instigate Brazil’s mills to turn more cane crushing toward sugar making rather than ethanol production.

Another negative factor for rates is the record low rate of the Brazilian real against the dollar. The real on Monday plunged -1.37% against the dollar and is little above the record low of 5.3528 reals/USD from April 3. A weaker real is bearish for the commodity.

India’s sugar production dropped sharply

Concern about supply disruptions in India, the world’s second-largest producer of sugar, has been a decisive factor for the commodity. On March 27, the CEO of the Sugar Exim Corp said that the country would miss its targeted amount of sugar export of 5 MMT. The Coronavirus pandemic is causing a lack of labor at sugar mills. 

Because of the lockdowns from the epidemic, lots of ports and terminals declared force majeure. 

ISMA, the Indian Sugar Mills Association, noted in March that the 3-week lengthy lockdown may affect the country’s cane crushing. India’s Government took some measures to fight the spread of the Coronavirus.

According to the ISMA report on Wednesday, sugar production in India decreased sharply by -22% y/y to 23.27 MMT during October-March.

The fall in ethanol prices prompts mills to produce more sugar versus ethanol. The CEO of Alvean, the world’s top trader of the commodity, stated that Brazil’s 2020/21 production might reach the record 36.06 MMT of 2017/18.