Rabobank says NY sugar futures to fall on more supply, COVID-19 demand weakness

Singapore — New York No. 11 sugar futures could fall to 10.5 cents/lb in Q3 as Brazil and Australian exports accelerate and government restrictions on movements due to the COVID-19 cause demand to slow or possibly fall, Rabobank said in a report on June 25.

Sugar futures have surpassed 12 cents/lb in June due to factors such as a higher oil price, strengthening of the Brazilian real and short-term demand.

According to Rabobank, New York No. 11 futures are expected to head toward 12 cents/lb by Q1 2021. Prices in the longer term until 2022 are showing a flat curve structure at 12 cents/lb.

As government policies continue to encourage consumers to stay home to keep from spreading the coronavirus, sugar demand will weaken with consumption growth estimated between 0 to negative 2% in 2019-20. While consumption estimates for 2020-21 are likely to improve, Rabobank expects a cap on demand due to a global economic recessionary outlook.

Some factors that could affect short-term demand is the heavy reliance on Brazilian raws coupled with port congestion at the Santos port in Brazil. However, Rabobank anticipates supply tightness to ease as the port congestion improves amid a slowdown in Brazilian soybean exports and the start of the Australian crushing season in June.

Brazilian local ethanol prices have improved since mid-May reaching similar levels to ex-mill hydrous ethanol prices in June 2019.

Sales in June have also improved after a 30% year-on-year fall in May sales. Rabobank predicts an increase in ethanol consumption, which could tighten late-season supplies in H2 of 2020.

Another factor affecting global prices would be the announcement of 2020-21 Indian export subsidies in Q3 2020. With India's production recovering to 33 million mt-34 million mt in the new season, export volumes will have to increase to prevent heavy stockpiling.

The Indian government is in talks to increase the minimum selling price (MSP) by 2 rupees/kg to 33 rupees/kg which could dampen exports in 2020-21.

Exports for 2020-21 are expected to be over 5 million mt, little changed from the current 2019-20 season, according to Rabobank's report.