Frost Damage to Brazil's Sugar Crop

UNICA reported on the damages caused by the frost that hit the sugar growing regions in Brazil this week, mainly the states of São Paulo and Goiás. This shoudl reduce the expected production for the next sugar crop. ​As a result, the sugar futures market in New York closed at a strong high on Friday.

​This is following close on the heels of the water deficit, from which the crop has been recovering, but now it is suffering from low temperatures. However, more cautious agronomists are waiting a few days before making a more infomred decision on the actual impact of the frost. There are other experts saying that the sugarcane impacted by the frost needs to be harvested immediately so that it won’t lose quality.

In Sao Paulo, following the frost damage, the sugarcane crops in Brazil will be further affected due to the new polar air mass that is set to move over the country’s agricultural areas this week. According to weather forecasters, thre is another wave of cold that will impact the crops in Brazil this winter, which is a rare situation and not seen in the country in decades. Brazil has already witnessed the worst drought in 90 years. If it turns out that the sugar crop fails because of the frost damage, the price curve for the 2022/2023 and 2023/2024 sugar futures markets in New York will increase. 

On teh demand side of the equation, we have numerous factors such as the recovery of the post-pandemic world economy, the increase in per capita sugar consumption in the main consuming countries, the resumption of the domestic consumption of fuel whose prediction is at 7%, and the energy policy in India focusing on ethanol production. All of these factors are driving demand upwards. With increasing demand and tightening supply, we have a recipe for higher prices and possibly a bull market.