The global sugar market is oversupplied but futures bucked the trend and strengthened institutions: speculative capital and fundamentals deviated from future trade surpluses and may reach 2.5 million tons

The Zhitong Finance App learned that the global sugar market is facing an obvious oversupply situation, but the lack of key production data makes it more difficult for investors to judge supply and demand prospects. French commodity trader Sucres et Denrees SA (Sucden) said that while major sugar producers such as Brazil and India have strong supply, global import demand is relatively weak, there is a clear divergence between the current upward trend and fundamentals of the sugar futures market.

Dimitri Varsano, co-head of sugar trading at Sucden, said: “We rarely see such oversupply in trade flows. Importers are unwilling to import large quantities, while exporters have large amounts of sugar to export.”

This judgment is in stark contrast to the recent strong trend in the sugar futures market. Raw sugar futures contracts, which are the most actively traded in the New York market, have accumulated a cumulative increase of about 12% since August, and once hit a 10-month high in the intraday session on Monday.

The recent rise in sugar prices was mainly driven by investor position adjustments and supply concerns. On the one hand, the market is worried about India's sugar supply; on the other hand, Brazil's key sugar cane pressing data has been out of reach for a longer period of time, which has also increased investors' uncertainty about the global supply situation.

The Brazilian industry organization Unica previously adjusted the frequency of publication of sugar cane pressing data, making the market wait longer to obtain this important indicator for measuring sugar supply in Brazil and the world at large.

Varsano said that currently “there is a difference between speculative capital and fundamentals,” and the recent rise in sugar prices has instead provided an ideal hedging opportunity for producers.

According to the latest data from the US Commodity Futures Trading Commission, fund managers further cut net short positions in raw sugar futures for the week ending August 4, while long positions rose to the highest level in nearly three years. However, this set of data does not fully reflect further changes in investors' positions during the rise in sugar prices last week.

In addition, the market has recently begun to pay attention to the possible impact of the El Niño weather pattern on major sugar producing regions, further driving speculative capital to be bullish.

Although some analysts expect a possible supply gap during the sugar season from October to September, Sucden's judgment from the perspective of actual global trade flows is clearly more pessimistic.

Sucden predicts that the global sugar trade flow could generate a supply surplus of up to 2.5 million tons for the period ending April 2027.

This estimate mainly takes into account the amount of sugar that exporters can actually supply to the international market, as well as the current relatively slow procurement rate of Asian and Middle Eastern importers.

Varsano pointed out that in recent years, the maximum trade surplus calculated according to this caliber is no more than 1 million tons, so if the surplus reaches 2.5 million tons this time, it will mean that the international sugar market has significantly more supply available for export.

One of the main reasons for abundant global supply comes from Brazil, the world's largest sugar exporter. Sucden predicts that during the current harvest season up to March next year, sugar production in south-central Brazil, the core sugar producing region, will reach about 40 million tons, roughly the same as the previous production season.

Notably, this forecast already takes into account that more sugar cane may be used to produce ethanol. In other words, even if the proportion of ethanol produced from sugar cane increases, Sucden still expects Brazil's sugar production to remain at a high level to provide sufficient supply to the international market.

India's supply prospects are also optimistic. Sucden estimates that before sugar used in ethanol production is deducted, sugar production in India is expected to reach around 32 million tons.

The recent rise in sugar prices in India has once heightened market concerns about the country's supply, and has become an important factor driving up international sugar prices. However, Varsano believes that this round of price increases may only be temporary.

As India's new sugar cane harvest season begins in October, the current upward pressure on domestic sugar prices is expected to ease after new supplies enter the market.

New York raw sugar futures fluctuated between ups and downs on Monday, when prices once rose to a 10-month high. The market is currently showing two obvious power games: on the one hand, El Niño risk, India's supply concerns, and Brazil's data gap are attracting speculative capital to make up short positions and increase long positions; on the other hand, the global physical movement observed by Sucden shows that supply is still very abundant.

According to Sucden, production in Brazil and India remains strong, while import demand from Asia and the Middle East is not strong, leaving the global sugar trade market still in a state of clear oversupply.

Therefore, Varsano believes that the recent rise in sugar prices does not mean that the fundamentals of supply and demand have become tight. In contrast, the divergence between futures prices and actual trade fundamentals is widening, and this round of increases also provides a more favorable hedging window for sugar producers to lock in future sales prices.