Unusual frosts in Brazil to adversely impact sugar output; sugar price might increase

Sugar output in Brazil, the world’s largest producer and exporter of the sweetener, is set to slump – and could suffer next year as well – after three frost events hit crops in the country’s center-south region in June and July, market analysts said.

Brazil has been hit with an unusually harsh winter this year with temperatures dropping to freezing levels for several days, hurting crops from corn to coffee and sugar cane. The frost follows one of the country’s worst droughts in decades, which also hit the nation’s agricultural industry hard.

Agro commodities brokers are cutting Brazil’s final production drastically. Brazil’s sugar output is being projected anywhere between 28 million tonnes to 35.7 million tonnes this year.

Prices have soared on the expected crop loss. Sugar futures in New York were near the highest in four years last week. Widespread frosts is likely to result in lower agricultural yields leading to a cane crush of around 490-500 million tonnes against 605 million tonnes crushed last season.

Commodities traders estimate 2021/22 sugar supply balance swinging to a deficit of 1 million tonnes, from a surplus of 1.7 million tonnes seen in May 2021.

Sugar prices are on a bullish trend over the next few years, as India pushes for more cars to run on ethanol made from sugar, a move that risks raising the cost of the sweetener globally.

The government is fast-tracking an ethanol program that will divert as much as 6 million tonnes of sugar toward fuel production annually by 2025, according to the food ministry. That’s almost the entire amount that India, the world’s second-biggest producer after Brazil, currently exports to the global market. It’s good news for the world if India diverts sugar to produce more ethanol as it will reduce the global surplus of the sweetener. India seems to be pursuing a similar strategy to Brazil, which has promoted sugarcane-based ethanol for more than 40 years to ease its sugar glut, cut dependency on oil imports and increase energy security. Today, Brazil owns the largest fleet of flex-fuel cars that can run on any blend of ethanol and gasoline.

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