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Favorable Weather Forecast for Brazil Pushes Sugar Prices Down

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Jan. 28 2016, Updated 4:09 p.m. ET

Sugar prices fall

Sugar No. 11 futures contracts on the Intercontinental Exchange (or ICE) for March delivery fell by 3.1% and settled at $13.58 per pound on January 27, 2016.

Sugar prices fell due to favorable Brazilian sugarcane output cues from supportive weather expectations. The iPath Dow Jones-UBS Sugar Subindex Total Return Service Mark ETN (SGG) fell by 4.2% on January 26, 2016.

Dry weather conditions are unfavorable for the sugarcane crop, as it requires higher moisture conditions. The weather in the Brazilian sugar-producing regions is anticipated to be favorable for the week ending January 31, 2016. The hot and dry weather is expected to turn to cool and rainy.

The favorable weather conditions could support sugarcane production in major producing states such as São Paulo, Minas Gerais, and Goiás. Favorable production sentiments supported sugar output projection on January 27, 2016, and dragged sugar prices down.

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Shipping agency Williams Shipping noted in a report that weekly scheduled exports from Brazil rose by over 5% week-over-week to 943,000 metric tons for the week ended January 27, 2016. The rise in shipping suggests higher output and supply. Speculation of an extended exportable sugar crop hurt sugar prices on January 27.

Mexico’s sugar output for the week ending January 23, 2016, rose to 1,649,000 tons, according to a report by industry giant Conadesuca on January 27, 2016. Production was lower than in the similar period of the 2014–2015 marketing year by 102,000 tons. Speculations of slower sugar output pushed prices down on January 27, 2016.

Stock discussion

The fall in sugar prices supports sugar confectionery companies, but it’s unfavorable to sugar-producing companies. Shares of The Hershey Company (HSY), General Mills (GIS), and Campbell Soup Company (CPB) fell by 0.76%, 0.34%, and 0.27%, respectively, on January 27, 2016.

In contrast, Cosan (CZZ) rose by 0.35% on January 27. The iShares MSCI China Index ETF (MCHI) fell by 1.5% on January 27, 2016, with the fall in sugar prices.

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