Sugar Prices Rally on Strength in Crude Oil and the Brazilian Real

Sugar prices are up today, supported by strength in crude oil and the Brazilian real, which is prompting short covering after recent multi-year lows. The rally comes amid a two-month downtrend driven by expectations of a global sugar surplus, with the USDA projecting a record 189.318 MMT production for 2025/26. While the ISO forecasts a reduced global sugar deficit, projections for increased output from India and Thailand continue to weigh on prices, despite reduced production in Brazil.

Analysis

Sugar prices experienced a modest rebound today, with July NY world sugar #11 (SBN25) up +1.09% and August London ICE white sugar #5 (SWQ25) up +1.31%, driven by short covering. This activity was spurred by a strengthening WTI crude oil price (CLN25), which climbed to a 2-1/4 month high, potentially diverting more sugarcane to ethanol production, and a rally in the Brazilian real (^USDBRL) to an 8-month high, discouraging exports from Brazil. This rally interrupts a two-month downtrend that saw NY sugar reach a 4-year nearest-futures low and London sugar a 3-3/4 year low last Friday, primarily due to expectations of a substantial global sugar surplus.

The prevailing bearish sentiment is underpinned by multiple forecasts predicting robust global production for the 2025/26 season. The USDA, in its May 22 report, projected a +4.7% year-over-year (y/y) increase in global sugar production to a record 189.318 million metric tons (MMT), leading to a global surplus of 41.188 MMT, up 7.5% y/y. Key contributions to this surplus are expected from Brazil, with a forecasted record output of 44.7 MMT (+2.3% y/y), and India, where production is anticipated to climb significantly – estimates range from +19% y/y to 35 MMT (India's National Federation of Cooperative Sugar Factories) to +25% y/y to 35.3 MMT (USDA FAS), aided by favorable monsoon forecasts (105% of long-term average) and increased acreage. Thailand's 2025/26 production is also expected to rise +2% y/y to 10.3 MMT, following a +14% y/y increase in its 2024/25 output to 10.00 MMT. Furthermore, the Indian government's decision to allow 1 MMT of sugar exports this season, easing prior restrictions, adds to anticipated global supplies.

However, conflicting data points introduce complexities to the outlook. For the 2024/25 season, the Indian Sugar Mills Association (ISMA) projects India's sugar production will fall by -17.5% y/y to a 5-year low of 26.2 MMT, with output from October 1 to May 15 already down -17% y/y. The Indian Food Secretary also suggested 2024/25 exports might only reach 800,000 MT, below the 1 MMT allowance. In Brazil, Unica reported that Center-South sugar production for the first half of May 2025/26 fell -6.8% y/y, and cumulative output is down -22.7% y/y. Conab, Brazil's crop agency, projected the country's 2024/25 sugar production to decrease by -3.4% y/y to 44.118 MMT due to drought and heat, with Green Pool Commodity Specialists estimating up to 5 MMT of sugarcane lost to fires. In contrast to the USDA's surplus forecast for 2025/26, the International Sugar Organization (ISO) on May 15 revised its 2024/25 global sugar *deficit* forecast upwards to a 9-year high of -5.47 MMT and reduced its 2024/25 global production estimate. Despite these counterpoints, the USDA also projects a +1.4% y/y rise in global 2025/26 human sugar consumption to a record 177.921 MMT, with ending stocks climbing +7.5% y/y.

Key Decisions for Investors

• Recognize the current sugar price rally, fueled by external factors like crude oil strength and the Brazilian real, as potentially offering short-term opportunities but subject to reversal given the strong bearish fundamental outlook based on projected 2025/26 global surpluses.
• Closely monitor Brazilian and Indian production data and official forecasts for both the 2024/25 and 2025/26 crop years, as significant discrepancies between various agency projections (e.g., ISO's 2024/25 deficit versus USDA's 2025/26 surplus) and actual output will be critical price determinants.
• Factor in the ongoing influence of crude oil prices on potential sugarcane diversion to ethanol and the Brazilian real's impact on export competitiveness, as these elements will continue to affect short-term sugar price volatility and producer decisions.
• Evaluate the conflicting timelines and assumptions between the ISO's forecast of a deepening deficit for the 2024/25 season and the USDA's projection of a record surplus for the 2025/26 season, as the market navigates these differing outlooks.