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Insider - Sugar Prices Break Out to 4-3/4 Month High

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Oct NY world sugar #11 (SBV20) on Friday closed +0.53 (+4.38%), and Oct London white sugar #5 (SWV20) closed up +13.40 (+3.64%).

NY world sugar prices on Friday rallied sharply on fund buying and a technical breakout to a new 4-3/4 month high. Sugar prices also saw support from the generally weak dollar and from expectations for China and Indonesia to boost imports. Sugar prices saw support from Friday's mild rally in Sep WTI crude oil prices, which was positive for Brazilian ethanol prices/production and negative for sugar production.

Sugar prices have underlying support from sugar crop concerns in Thailand, the world's second-largest sugar exporter. Czarnikow Group on Sunday said that it projects that Thailand's 2020/21 sugar production could drop more than -10% y/y to an 11-year low of 7.4 MMT, well below USDA estimates of 12.9 MMT, due to the worst drought in four decades.

Sugar prices were undercut by Friday's -1.1% sell-off in the Brazilian real against the dollar, which encourages export selling by Brazil's sugar producers.

In a bullish factor, the European Commission reported Thursday that EU Oct-Jul sugar exports slumped -54% y/y to a 3-year low of 600,000 MT, indicating the reduced availability of supplies from the EU.

In a bearish factor, Unica reported last Friday that Brazil's Center-South sugar production in the first half of July rose +55.6% y/y to 3.022 MMT, with the percentage of cane used for sugar climbing to 47.94% in 2020/21 from 35.99% in 2019/20. Also, ethanol demand is weak after Unica also reported that total ethanol sales by Brazil Center-South mills in the first half of July fell -19% y/y to 741.4 mln liters, which indicates pressure for less ethanol production and more sugar production.

Ongoing demand concerns are bearish for sugar prices. Consulting firm Datagro said July 15 that about 5 MMT of global sugar consumption would be lost between March 2020 and February 2021 due to the effects of the pandemic. Czarnikow Group projects that with the closure of restaurants, sports arenas, and cinemas all over the world due to Covid lockdowns, global sugar demand will fall this year for the first time in four decades.

Sugar prices have support on concern that the surging Covid pandemic in India may disrupt its harvest and sugar exports. Covid infections in India, the world's second-largest sugar producer, have risen above 1 million, the third-most in the world behind the U.S. and Brazil.

The Indian Sugar Mills Association (ISMA) on June 25 said that India's 2020/21 sugar production would climb +17.7% y/y to 32.01 MMT as sugar acreage increased by +8.1% to 5.23 mln hectares. ISMA also projects that India's 2020/21 sugar exports will jump to 7 MMT, up +25.7% from 5.2 MMT in 2019/20.

Big Picture Sugar Market Factors: World sugar production in 2019/20 (Apr/Mar) fell -4.8% y/y to 166.7 MMT, after the +0.6% y/y rise to a record 185.2 MMT in 2018/19 (ISO). The world sugar balance in 2019/20 tightened to a -9.3 MMT deficit, the biggest shortfall in 11 years, from the +1.7 MMT surplus seen in 2018/19 (ISO). Sugar production by Brazil, the world's largest sugar producer, in 2020/21 will climb by +18.5% y/y to 35.3 MMT, as millers divert more cane juice to produce sugar since the outlook for ethanol has been decimated by the drop in consumption and prices (Conab). Sugar production by India, the world's second-largest sugar producer, in 2019/20 will fall -15% y/y to a 3-year low of 28 MT due to drought and a delayed monsoon season (India's National Federation of Cooperative Sugar Factories Ltd).

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