Sugar Prices Steady as Conab Trims Crop Estimate
Sugar prices have steadied as the year winds down, showing some stability after a steep losing streak since October put the commodity into a bear market. The recent, steep losses mask the fact that it has still been a very positive year for the commodity, with sugar futures up over 20% over the year.
Overall, the sugar market has been supported by forecasts for a global production deficit, which attracted a large amount of speculators into the market. The large amount of speculator holdings is also what has contributed to the price volatility.
Another factor that boosted the sugar market this year was currency fluctuations. In 2016, the Brazilian real experienced some wild swings relative the greenback. A lower real encourages exports of dollar-denominated sugar. Also, a lower real encourages production of sugar for exports at the expense of producing ethanol for domestic consumption.
This week, prices were supported by a report from the Brazilian crop supply agency Conab, which showed a lower-than-expected end of season sugar supplies. Conab trimmed its estimate for the sugar season just wrapping up and is now expecting 2016-17 sugar production in the Brazilian Centre-South cane belt at 36.3 million tons, down from the 36.5 million tons forecast in August, but still up about 18% year-over-year. Across the entire country, Conab reduced its sugar production forecast to 39.8 million tonnes, down from the 39.9 million tons forecast previously.
The increase in sugar production this season was due to a rising in planted area with a large amount of cane left over from the prior season. Also, more sugar cane produced was diverted to sugar production, rather than to ethanol due to currency fluctuations.