Satellite data on the Gro Intelligence platform shows strongly favorable growing conditions in Brazil’s key sugarcane region. A bumper crop in the world’s top sugar-producing country would offset expected declines in other big sugar producers Thailand and India and could temper recent gains in global sugar prices.
The global sugar market is in flux after two years of Asian production gains, which drove global sugar prices to decade lows and prompted Brazil’s processors to divert a whopping two-thirds of the country’s sugarcane into fuel ethanol used in automobiles. Today, those Asian production gains appear to be unraveling. Raw sugar futures prices on the ICE US Futures exchange, the global benchmark, hit their highest level since 2017 last week. And in Brazil’s upcoming season, processors could very well seek greater profits by producing more sugar and less ethanol.
Thailand’s meteorological department says the country is experiencing its worst drought in 40 years. That’s stressing what is typically the world’s third-largest sugar crop. Gro’s evapotranspiration-based drought indicator shows dry conditions across nearly the entire country. Aggregated to the national level, Gro’s drought indicator index for Thailand dropped to its second-lowest January level since the satellite-derived series began in 2003. Only in 2005, when Thai sugar production fell 26%, was the January drought index lower.
Thailand is experiencing its worst drought in four decades. At left, Gro’s evapotranspiration-based drought indicator shows dry conditions across Thailand, broken down by districts. On the right, the drought indicator values aggregated to the country level and stacked by time compare the current level (single marker on left axis) with levels of the past 17 years. January dryness by this measure was only worse in 2005. (The solid line is the previous year, dotted line is historical average, and shaded area is historical range.)
The Thai Sugar Millers Corporation (TSMC) said it was surprised by the severity of the impact and now expects the country’s sugar crop will fall by a third to just 9 million to 10 million tonnes this year. The current NOAA GFS forecast, also available in Gro, shows no significant rainfall over the next 10 days. Since sugarcane crops aren’t planted every year, the pervasive dryness will also affect next year’s harvest.
The impact will be felt globally since Thailand typically exports 70% of its production. Thai sugar exports this year will fall to between 6 million and 7 million tonnes from 11 million last year, TSMC estimates. India, where sugar stockpiles are high, will likely benefit from the decline in Thai competition on the global export market.
India, normally the world’s second-largest producer, is also dealing with the impact of poor weather. A late 2019 monsoon trimmed sugarcane planting and stunted crop growth. A Gro analysis last summer comparing monsoon rainfall to sugar production in India pointed to a 20% cut in sugar production. Then, late monsoon rains brought floods to the key sugar-producing state of Maharashtra. India’s crushing season, which began in October, has so far yielded 17 million tonnes of sugar, which is down 23% from the same period last year. For the full year, the India Sugar Millers Association (ISMA) projects that production could be down 22% to 26 million tons.
The expected production declines in Thailand and India have led analysts to increase their estimates for a 2019/20 supply deficit to between 6 million and 8 million tonnes from 1 million to 3 million tonnes earlier this season. That would trim global stocks to levels last seen in the 2016/17 marketing year when raw sugar futures prices spent much of the year above 20 US cents per pound before dropping to about 10 cents per pound. Prices last week hit 15.78 cents per pound.
Still, we’re only halfway through the current 2019/20 marketing year, and Brazil’s sugarcane fields on the other side of the world are seeing their best conditions in years. Brazil is normally the world’s largest sugar producer. Vegetative health, as measured by NDVI, in the country’s main-producing Sao Paulo state is near a 20-year high. Brazilian forecaster SOMAR reports strong rains and sun have allowed “ideal” cane development.
In sharp contrast to conditions in Thailand, Brazil’s sugarcane crop is thriving. Vegetative health in the state of Sao Paulo, where sugarcane is grown widely, is near 20-year highs. On the left, the satellite-derived normalized difference vegetative index (NDVI) is shown for each district in the state. On the right, current NDVI levels (blue line with markers) aggregated to the state level and stacked by time show that mid-February values are near 20-year highs. (The other solid line is the previous year, dotted line is historical average, and shaded area is historical range.) Click on the image to interact with the charts on the Gro web app.
Brazil’s upcoming sugar harvest will be key in determining where global sugar stocks will end when the marketing year wraps up in September. More specifically, how much sugar versus ethanol Brazilian mills produce will be critical. Depending on the relationship between sugar and ethanol prices in Brazil, mills adjust their sugarcane crushing to produce more of one product over the other.
Low sugar prices in 2018 drove mills in center-south Brazil to crush 65% of their cane into ethanol, which cut sugar production by 10 million tonnes from a year earlier. This year could see at least a partial reversal of that shift. The relationship between sugar and ethanol prices in Brazil is determined by numerous factors, but the main drivers are local hydrous ethanol prices in Brazil, raw sugar futures prices, and the exchange rate of the Brazilian real against the US dollar. The current strengthening of sugar prices and a weakening of Brazil’s currency mean sugar production is looking more profitable to Brazilian mills this year than last.
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