The occurrence often brings drier-than-usual conditions in parts of Asia and Australia and soggy weather in Brazil, historically hurting output in key sugar areas. While the pattern isn’t yet a certainty, the odds of one taking hold later this year have increased.
That could limit the potential for a recovery in production that is forecast to drive the world market into a surplus in the coming season, speakers from the industry warned at a conference in Geneva this week.
The prospect of a looming El Nino comes at a bad time for the market, with sugar surging to the highest in a decade on the back of tight global supplies. That’s threatening to add to costs for manufacturers of everything from soft drinks to baked goods and maintain pressure on global food inflation.
BloombergS&P Global Commodity Insights predicts a sugar surplus of 4.5 million tons in the 2023-24 season — which would follow three years of a market either in shortfall or balanced. But that outlook hinges on normal weather, and any upsets could keep sugar prices high.
El Nino is “for sure something to be monitoring going forward,” Luciana Silveira Soncin, global manager of sugar analytics at S&P Global, said at the Geneva Sugar and Biofuels Conference. “With El Nino and risks of disruption to production, there’s more downside” risk to next season’s surplus estimate than upside, she said.
The last strong El Nino took place in 2015-16, curbing sugar output by about 7 million tons, Soncin said.
“If we do get an El Nino-type event that typically disrupts 5-10 million tons of production, it’s a whole different market we’ll be looking at,” Philip Ryan, head of white-sugar trading at Engelhart Commodities Trading Partners, said in Geneva.
The US Climate Prediction Center now sees a 74% chance of El Nino emerging between August and October. The phenomenon occurs when the equatorial Pacific warms and reacts with the atmosphere to disrupt weather patterns.
Crop Risks
An El Nino could depress Indian output, Henrique Akamine, head of sugar and ethanol at Tropical Research Services, said by phone. It’s also becoming a concern for Brazil’s crop as above-normal rainfall would hamper harvesting, limiting supplies and export availability from the top shipper, he said.
“If you do not have the sugar supply from Center-South Brazil, I don’t know where you can find more sugar because you don’t have any other source as relevant and as important,” he said.
El Nino’s vary in intensity and a milder one could limit output losses. But if one does arrive it could spark a response from speculators, said John Stansfield, a senior sugar analyst at DNEXT Intelligence.
Events like El Nino do “tend to lead to major price rallies, markets do tend to move fairly quickly,” he said in Geneva. “Weather risk for me is by far our biggest risk in the coming months.”
