May 9, 2021
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- Sugar price ended Friday’s session at $17.49; close to the one-month high of $17.98.
- May WASDE report will shape the price movements in the coming week.
- USD/BRL three-week downtrend has offered support to sugar price.
Sugar price remains on an uptrend amid a weakening US dollar and rising demand. On Thursday, it rose to $17.90, which is close to the one-month high of $17.98 hit on 27th April. It ended Friday’s session at $17.49, down by 0.34%. May’s WASDE report will avail cues on the commodity’s supply status.
Upcoming WASDE report
Sugar price remains on an uptrend ahead of May’s WASDE report on Wednesday. In April’s report, USDA left its estimates for sugar usage and supply in the US largely unchanged. The ending stocks-to-use ratio remained at 15.1%.
In a recent interview with CNBC-TV18, Indian Sugar Mills Association (ISMA) director general, Abinash Verma noted that sugar production in Brazil is expected to decline by between 7 and 8 million tonnes compared to 2020. Besides, Thailand, which is ranked second in sugar exportation, has had its production drop by around 7-8 million tonnes for two consecutive years. For those looking to invest in commodities, May’s WASDE report will offer cues on sugar’s supply status.
Recovery of crude oil prices
The rise in crude oil price is one of the factors that have been offering support to sugar price. In the US, corn is the key input in ethanol production. Similarly, sugarcane is the key ingredient for ethanol production in Brazil.
About 73% of the automobiles in Brazil, which equates to 27 million vehicles, use a blend of ethanol and gasoline. Subsequently, a rise in gasoline prices heightens the demand and price of biofuels in the South American country. In the past week, Brent futures rose from $66 on Monday to the week’s high at $70. However, it pulled back to end Friday’s session at $68.20.
Furthermore, on a weekly chart, RBOB gasoline futures are at their highest level since May 2018. The product’s current futures contract has been on an uptrend from October 2020. Over the course of the 6 months, it has surged from $0.9690 to $2.1269. The expected rise in global oil demand is likely to push gasoline prices higher. This will heighten the demand for biofuels. Which is a bullish catalyst for sugar price.
Weakening US dollar
The weakening US dollar has further fuelled the rallying of sugar price. Like most other commodities, sugar price has an inverse relationship with the value of the greenback. This is because a weaker dollar makes it less expensive for the buyers, thus increasing the demand for products like sugar.
In particular, USD/BRL price movements impact sugar price. In the past week, the currency pair continued with its 3-week downtrend. The Brazilian Real strengthened against the greenback after the country’s central bank hiked interest rates from 2.75% to 3.50%. It further signaled that it would raise the rates further to 4.25%. it was the second time that the Brazilian central bank was hiking interest rates in 2021.