Sugar Prices Erase Early Losses as Conab Cuts Its Brazil Sugar Production Forecast

Sugar prices saw modest gains Tuesday, supported by a slight cut in Brazil's 2025/26 production estimate by Conab and strong Chinese import data. However, the broader outlook remains bearish for the 2025/26 season, as major producers like India and Thailand anticipate significant production increases, with India poised to export more sugar due to favorable monsoon rains. This, coupled with Brazilian mills prioritizing sugar over ethanol, underpins projections for a substantial global sugar surplus of 7.5 MMT, the largest in eight years, despite a current global deficit forecast by the ISO for 2024/25.

Analysis

Sugar prices are exhibiting a significant divergence between near-term tightness and a bearish medium-term outlook. The modest recent gains in SBV25 and SWV25 futures are supported by immediate factors, including a -3.1% cut in Brazil's 2025/26 production forecast by Conab to 44.5 MMT and strong demand signals, such as China's 76% surge in July imports. This aligns with the International Sugar Organization's (ISO) forecast of a 9-year high global deficit of -5.47 MMT for the current 2024/25 season. However, this tightness is overshadowed by formidable headwinds for the upcoming 2025/26 season. Projections point to a substantial supply glut, with commodities trader Czarnikow forecasting a 7.5 MMT global surplus, the largest in eight years. This is underpinned by expectations of record global production, as forecasted by the USDA at 189.318 MMT (+4.7% y/y). Key supply-side drivers include Brazilian mills prioritizing sugar over ethanol, with the crush rate for sugar rising to 54.10% from 50.32% a year ago, and a major production rebound in India, where output is projected to climb +19% y/y to 35 MMT on the back of favorable monsoon rains, potentially leading to 2 MMT in new exports. The market appears to be pricing in this future surplus, capping rallies and keeping prices under pressure despite the current deficit.

Key Decisions for Investors

• Investors should view the current price support from the 2024/25 deficit as a short-term tactical condition, as the fundamental outlook for the 2025/26 season is overwhelmingly bearish due to a projected record global surplus.
• Monitor official announcements from India regarding its sugar export policy for the 2025/26 season, as confirmation of 2 MMT or more in exports would serve as a significant bearish catalyst for forward contracts.
• Given the projection of a 7.5 MMT global surplus for 2025/26, any price rallies driven by temporary factors may present strategic opportunities to initiate or build short positions.
• Pay close attention to Brazilian harvest and crush data, specifically the percentage of cane allocated to sugar versus ethanol, as continued prioritization of sugar will reinforce the supply surplus narrative.