(Sept 25): Brazil’s wildfires and drought that rattled the global sugar market have put the onus on Thailand and India to cover lost supplies. But both have offered recent reminders that they too face their own risks.

Futures spiked to the highest since February this week as fears mount over crop damage from blazes, heat and dryness in top grower and exporter Brazil. That’s threatening to raise costs for grocery goods from soft drinks to candy and shifting traders’ focus to how output fares in fellow major producers.

The good news is that the crop in No 2 shipper Thailand is expected to rebound in the upcoming 2024-25 season. Yet September floods have provided a fresh warning of weather risks, with worries starting to surface that harvesting may be delayed if heavy rains continue. And in second-largest grower India, support for ethanol production means officials will likely prolong sugar-export curbs.

“The sugar market is sitting on a powder keg and we just need another light to set it on fire,” said Henrique Akamine, head of sugar and ethanol at Tropical Research Services.

The unexpected supply shock from recent weather in Brazil helped raw-sugar futures surge 19% so far this month in New York. The price jump has also been fuelled by speculators turning bullish for the first time since July. The market has more room to rally as net-long positions are still far below historical peaks, according to John Stansfield, a senior analyst at DNEXT Intelligence.

“Sugar has one of the clearest bullish fundamental stories,” he said. “The funds can see the black hole in the raw-sugar balance sheet in the first and second quarter of 2025, and like the trade are struggling to see how Thai raws can fill the gap.”

The raw-sugar market should be in a global trade deficit of 2.2 million tons in the first quarter, according to Akamine, while independent analyst Claudiu Covrig pegs the amount at 1.3 million tons. The International Sugar Organization last month forecast sugar output to trail consumption by 3.6 million tons in 2024-25, a bigger shortage than the current season that’s about to end.

The tight supplies mean prices could climb even higher if there are more harvest setbacks.

For now, Thailand’s 2024-25 sugar output is expected to reach 10.6 million tons, up from 8.8 million tons a year earlier, according to the average of eight analyst and trader estimates compiled by Bloomberg.

While there’s no sign of recent floods there affecting plantations, the market is keeping a close eye on conditions. If rain persists until November, that could delay crushing from the new harvest until January — about a month later than usual — Virit Viseshsindh, the secretary-general of the Office of the Cane and Sugar Board, said in an interview on Tuesday.

Any delays would risk choking supplies into the world market at a time when Brazil’s shipments typically slow — something that Tropical Research Services’s Akamine said would “have severe consequences”.

India’s output should total about 30 million tons after diversions to make ethanol, according to the average estimate of 11 traders and analysts surveyed. That would be roughly two million tons below a year earlier, though outlooks ranged partly due to different views on acreage.

It’s unclear whether any will go to other nations. The government last year extended export curbs to keep local prices in check ahead of elections. Last month, it lifted restrictions on mills and distilleries using cane juice to make ethanol, a move that will help meet a target of boosting the proportion of the fuel in gasoline blends while also probably prolonging sugar-export curbs.

India in theory should have enough sugar to allow 1.8 million tons of shipments in 2024-25 and may ease export restrictions if there are ample domestic supplies, said Rahil Shaikh, managing director of Meir Commodities India Pvt, a Mumbai-based trading firm.

However, many respondents in Bloomberg’s survey don’t think the government will allow exports. DNEXT Intelligence’s Stansfield also doesn’t expect much relief from India.

“It is now becoming clearer that India will prioritise the ethanol sector and the world sugar market realistically cannot expect to see India coming to the rescue,” he said.

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