Sugar futures market plunges to the lowest level in almost 6 months

Sao Paulo — The sugar futures market ICE NY11 front contract plunged to 11.62 cents/lb Thursday, the lowest level since September 27 when it settled at 11.53 cents/lb, amid a panic scenario in the global financial markets triggered by the fast spread of the coronavirus and the collapse in the oil market.

There are some macro arguments for the drops in the sugar futures market, which are mainly due to the decline in the expected global economic growth, plunge in the international oil market and the strong devaluation of the Brazilian Real currency against the US dollar.

The global sugar year-on-year demand growth might fall to 0.2% in 2020 from an earlier forecast of 0.9% prior to the coronavirus outbreak, according to presentations showed in the Datagro conference on Wednesday. Most of this consumption drop is expected to come from China where the demand is expected to be reduced by 600,000 mt, according to conference's presentations.

Brazil's Center-South region, the world's largest sugarcane producer, is expected to start its crop 2020-21 and there is a strong consensus that Brazilian mills might deliver near 32 million mt to the global market, or 6 million mt of more sugar than in the current crop 2019-20.

Since the beginning of 2020 Brazilian producers have been massively hedging their sugar production for the crop 2020-21. The strong devaluation of the Brazilian Real combined with upticks in the ICE NY11 were translated in the highest prices in Real equivalent since 2016 when the ICE NY11 front contract settled at 20.22 cents/lb on November 17.

The shrink in the international oil market just added one more reason for a higher sugar mix in CS Brazil as the hydrous ethanol prices has a high correlation with gasoline price and might follow that lower price pattern.

According to market sources Brazilian producers have already hedged more than 70% of the crop 2020-21, which means near to 22 million mt. Despite today's fall in the sugar future market, the losses in Brazilian Reals equivalent were capped by the weakness of the domestic currency.

In the last ten days sugar futures market fell 15% in US dollars equivalent, while in Brazilian Reals that drop was of 8%.