Sugar Export Delays From Brazil Provide Support For Global Supplies, Port Capacity To Remain A Challenge Throughout 2024

Key View

• Throughout 2023, global sugar prices have continued to find support from a deteriorating global supply outlook.
• Due to a 10.4% y-o-y increase in Brazilian production in the 2023/24 season and restrictions on Indian sugar exports, Brazilian exports are forecasted at 32.4mn tonnes in 2023/24 by the USDA, representing a y-o-y increase of 14.8% and 29.4% above the average between 2018/19 and 2022/23.
• While we expect Brazil’s port capacity to come under the most severe strain in 2024 throughout March to September, reports of delays at Brazil’s Santos port, which typically handles around 75.0% of Brazil’s sugar exports, have already begun to circulate, contributing to first-month ICE sugar futures reaching 12-year highs.
• We note that it is not only at the ports where the increased export volumes of soybean and corn are likely to present logistical challenges. Instead, these challenges are likely to be present throughout the logistics chain.

Throughout 2023, global sugar prices have continued to find support from a deteriorating global supply outlook. A 12.7% y-o-y reduction in India’s 2022/23 sugar output and the implementation of an export allowance 45.5% lower than the volume exported in 2021/22, combined with concerns over the impact of an El Niño for the upcoming 2023/24 season, particularly in critical Asian markets such as India and Thailand, which tend to face dryer conditions during an El Niño climate, have contributed to global sugar prices trading at elevated prices throughout 2023. While global sugar prices have traded at high levels throughout 2023, with first-month ICE futures averaging USc23.8/lb in 2023 compared to USc18.9/lb in 2022, further price gains have been capped by expectations of a 10.4% y-o-y increase in Brazil, the world’s largest exporter. However, with the market having become increasingly dependent on Brazilian output, we note that global prices have become increasingly sensitive to concerns over a less-than-expected level of production or challenges to Brazilian exports, which could both catalyse further upward momentum. 

Due to a 10.4% y-o-y increase in Brazilian production in the 2023/24 season and restrictions on Indian sugar exports, Brazilian exports are forecasted at 32.4mn tonnes in 2023/24 by the USDA, representing a y-o-y increase of 14.8% and 29.4% above the average between 2018/19 and 2022/23. Expectations of ample exportable Brazilian sugar have helped limit further increases in global prices despite trading at near 12-year highs. However, Brazil’s ports are also expected to handle record volumes of soybean, with exports forecasted up 2.1% y-o-y in 2023/24 by the USDA and 15.2% above the previous five-year average, and significant volumes of corn, which, despite being forecast down 3.5% y-o-y, is expected to be 36.7% above the prior five-year average. Consequently, we expect sugar exporters to face increased competition from corn and soybean exporters in 2023/24, posing a downside risk to Brazil’s sugar export expectations and placing a floor under global prices. Also, given the importance being placed on Brazil’s sugar exports in 2024, we expect that market prices are likely to become increasingly sensitive to any news of potential challenges being faced exporting Brazil’s sugar. We note that Brazil’s sugar exports, which are shipped in relatively consistent volumes throughout the year, are likely to begin to face increasing competition in March, when there is typically a sharp upturn in soybean export volumes, with soybean exports increasing from 5.2mn tonnes in February 2023 to 13.5mn in March. Sugar exports will face stiff competition for export space up until September, with competition likely peaking in August. Sugar exports will face stiff competition for export space up until September, with competition likely peaking in August.

While we expect Brazil’s port capacity to come under the most severe strain in 2024 throughout March to September, reports of delays at Brazil’s Santos port, which typically handles around 75.0% of Brazil’s sugar exports, have already begun to circulate, contributing to first-month ICE sugar futures reaching 12-year highs. While this has been exacerbated by the diversion of Brazil’s crops, typically exported via Brazil’s northern ports due to a reduction in water levels in crucial transport routes along the Amazon River, this has been primarily driven by a record harvest of soybean and corn in 2022/23. Consequently, with a further increase in the combined export volume of corn and soybean and a record level of sugar exports, we expect delays to worsen during the 2023/24 season when Brazil’s Santos port is expected to handle even greater volumes. 

We note that it is not only at the ports where the increased export volumes of soybean and corn are likely to present logistical challenges. Instead, these challenges are likely to be present throughout the logistics chain. Be it the transportation of sugar cane to Brazil’s sugar and ethanol processing mills or the shifting of raw sugar from Brazil’s mills to its ports, Brazil’s sugar producers and exporters will be vying for truck and railway space against a second-successive major corn crop, leading to higher truck and railway freight costs, while also likely reducing the pace at which sugar is transported due to the substantial space that Brazil’s corn crop will require. Therefore, we are sceptical that Brazil will be able to export the combined volume currently forecasted by the USDA for wheat, corn, and sugar in the 2023/24 season. With sugar, in particular, this poses a substantial upside risk to the global price outlook in light of an expected export ban in India, the world’s second most important exporter, making prices increasingly sensitive to any reduction in Brazilian sugar export expectations. 

Acting as a further downside risk to Brazil’s sugar export expectations stems from the country’s domestic ethanol production. As shown in the chart below, Brazilian ethanol exports have experienced an upturn throughout August and September, with elevated energy prices boosting demand for ethanol. As such, despite continued forecasts of a record level of domestic sugar production, increasing volumes of sugar cane in Brazil are being diverted towards more profitable ethanol production. Ethanol production volumes will depend mainly upon global and domestic energy prices. Currently, our Oil and Gas team anticipates an upturn in the average annual cost of crude oil in 2024, with our forecasts indicating an average yearly price of USD81.0/bbl for WTI crude, up from USD78.0/bbl in 2023, which should support robust ethanol production and encourage the diversion of sugar cane away from sugar production. Should global energy prices find further upside support in 2024, further sugar cane diversion will be encouraged, posing a downside risk to Brazil’s domestic sugar production outlook and an upside risk to global sugar prices.