Expectations for Abundant Sugar Supplies Pressures Prices

Sugar prices have declined to multi-year lows due to expectations of a global sugar surplus, driven by projections of record production in 2025/26, particularly from India and Brazil, as highlighted by the USDA. Despite this downward pressure, prices saw a partial recovery Friday, influenced by a rally in crude oil prices which could incentivize a shift towards ethanol production, potentially reducing sugar supplies; however, the overall outlook remains bearish due to abundant rainfall forecasts in India and increased sugar acreage.

Analysis

Sugar prices have recently extended a significant selloff, with NY sugar #11 reaching a near 4-year nearest-futures low and London white sugar #5 a 3-3/4 year low, primarily driven by expectations of a substantial global sugar surplus in the 2025/26 season. The USDA's May 22 biannual report forecasts a record global production of 189.318 million metric tons (MMT), a +4.7% year-over-year (y/y) increase, leading to a global surplus of 41.188 MMT (+7.5% y/y) for 2025/26. This outlook is underpinned by projections of increased output from major producers: India's National Federation of Cooperative Sugar Factories anticipates a 19% y/y rise to 35 MMT in 2025/26, and the USDA's Foreign Agricultural Service (FAS) projects Brazil's 2025/26 production to hit a record 44.7 MMT (+2.3% y/y), with Thailand's output also expected to climb +2% y/y to 10.3 MMT. Favorable monsoon forecasts in India, with rainfall projected at 105% of the long-term average, further reinforce this bearish sentiment. Conversely, the market is contending with mixed signals for the current 2024/25 season and early 2025/26 period. The International Sugar Organization (ISO) on May 15 revised its 2024/25 global sugar deficit forecast to a 9-year high of -5.47 MMT and reduced its global production estimate for that season. Recent data from Brazil's Unica indicated a year-over-year decline in Center-South sugar production for the first half of May 2025/26 (-6.8% y/y) and cumulative figures through March for the 2024/25 season (-5.3% y/y). Additionally, Indian sugar association ISMA projects a significant 17.5% y/y decrease in the country's 2024/25 output to a 5-year low. A recent rally in WTI crude oil prices also offered temporary price support by potentially increasing sugarcane diversion to ethanol, sparking some short covering.

Key Decisions for Investors

• Given the multi-year low prices and strong projections for a 2025/26 global surplus, investors should maintain a cautious to bearish stance on longer-term sugar price appreciation, acknowledging that current levels may already reflect substantial negative news.
• Traders should monitor for short-term volatility arising from conflicting 2024/25 supply data, such as the ISO's deficit forecast and actual Brazilian output figures, versus the influence of energy prices on ethanol demand which could temporarily support sugar prices.
• Closely track evolving weather conditions in India and Brazil, official production reports relative to forecasts, and any shifts in India's export policies, as these factors will be pivotal in confirming or challenging the current long-term surplus narrative and could present tactical trading opportunities.