U.S. sugarcane producers watching historically high world raw sugar prices can expect both the world and domestic markets will stay healthy in the long-term, LSU agricultural economist Michael Deliberto said. 

That’s good news for farmers hoping to capitalize on an improved profit opportunity. 

U.S. raw cane sugar prices for #16 contracts in May hit the highest mark since January 2011, averaging 42.56 cents per pound, Deliberto said. Though prices dropped below 42 cents in June, Deliberto expects a strong market going into the 2023-24 crop. 

“I think it’s got some momentum in the market long term,” Deliberto told attendees at the 40^th Annual Sugarcane Field Day in St. Gabriel, Louisiana, on July 20. 

Weather uncertainty, trade issues and tight supplies are primary factors in the elevated global market.  

“The uptick in U.S. futures continues to be mostly supported by the rally in the world raw cane sugar futures (#11) market, amid tight global supplies and concerns about El Niño in major producing countries,” Deliberto reported. The global market, #11 contracts, in May increased to 25.75 cents per pound, marking the highest first quarter since 2012, when the price was 24.86 cents per pound. 

The run has drawn the attention of commodity traders and hedge fund investors. 

“It’s causing a lot of outside influences to support the long-term prices,” Deliberto said. 

Rain may drown production 

Weather uncertainty drove high price forecasts earlier this year and additional concern about weather-related production challenges likely will support high prices, Deliberto said. Perhaps, even higher prices for #11 contracts on the world market. 

“Extreme weather could take prices much higher,” Deliberto said. “Prices should trend towards staying elevated in the 21 to 24 cents per pound range.” 

Production in Asian countries impacted by El Niño are a driving force pushing up the market. 

“Depending on the Asian monsoon rainfall, the sugar market could potentially become ‘very volatile,’ and weather driven in the medium term,” Deliberto said. 

In Brazil, the leading global sugar supplier, rain is hampering harvest in the south-central region of the country where 90% of the crop is produced. Those watching the market are gauging the impact on world prices. 

“But sugar prices are so high right now that even if prices cool substantially when the Brazilian harvest hits the market, prices could still be considered elevated above historical levels,” Deliberto said. 

Trade issues add uncertainty 

Various trade policy and political drivers add uncertainty to global supply, which created additional volatility in the market.  

A global movement toward higher ethanol production is impacting demand for sugarcane. 

“Another factor pushing prices higher is OPEC’s recent surprise decision to slash oil output by around 1.16 million barrels per day,” Deliberto said. “That has encouraged the diversion of sugarcane toward ethanol production.”  He noted that Brazil and India already use sugarcane for ethanol production.  

A strong Real, the Brazilian currency, also strengthens raw sugar prices.  

And, finally, he said, India may take governmental action to restrict imports to ensure its domestic supply. 

Tight supplies sweeten the price forecast 

In the export market, Brazil is currently the only supplier. With crowded ports and higher profit opportunity in corn and soy, Deliberto said exporters are struggling to move sugar out of the country. That’s a global market factor. Compounding global supply factors, in addition to the Asian monsoon and rain in Brazil, include: 

Domestically, Mexico may pour more sugar into the U.S. market this year but that’s may not be soon enough to dissolve high domestic prices. Production in Mexico was down in 2022-23 as a result of drought impacts on production. In 2023-24, Deliberto forecasts those imports could increase 30%. However, he said, last year’s decreased imports joined by lower-than-expected early beet sugar production and the possibility of exporting to Mexico support strong domestic prices for refined cane sugar and refined beet sugar. 

All told, the weather and supplies are creating tight demand. The current global supply situation is a surplus of 3 million metric tons. However, Deliberto said it’s expected to move to a deficit of 2 MMT in 2023-24. 

“There is a tight global supply and demand situation,” Deliberto said. “The #11 contract has traded between 18 and 27 cents this year – exhibiting risk and vulnerability to several of the aforementioned factors.” 

Contemplating the analogy that the only cure for high prices is reduced demand, Deliberto doesn’t see that day coming soon.