Sugar Prices Fall on the Outlook for Robust Global Supplies

Sugar prices declined Tuesday due to expectations of increased global supply, with Covrig Analytics raising its 2025/26 global sugar surplus estimate to 4.2 MMT. This outweighed earlier support from rising crude oil prices and a stronger Brazilian real, which typically incentivize ethanol production and discourage Brazilian sugar exports, respectively. Overall, sugar prices remain pressured by forecasts of record global production, particularly from India and Brazil, despite some concerns about reduced output in Brazil and a higher global sugar deficit forecast from the ISO.

Analysis

Sugar prices (July NY #11 SBN25 -1.14%, August London #5 SWQ25 -0.97%) declined, reversing earlier gains, primarily driven by an increasingly robust global supply outlook for the 2025/26 season. Covrig Analytics amplified this sentiment by revising its 2025/26 global sugar surplus estimate upwards to 4.2 MMT from a prior 4.1 MMT. Initial price strength, attributed to WTI crude oil (CLN25) reaching a 2-1/4 month high which could incentivize ethanol diversion, and the Brazilian real (^USDBRL) appreciating to an 8-month high thereby discouraging Brazilian exports, proved insufficient to counter the bearish supply news. The prevailing downtrend has pushed NY sugar to a 4-year nearest-futures low and London sugar to a 3-3/4 year low, reflecting deep-seated concerns about oversupply. The USDA's May 22 report further cemented this bearish outlook, projecting record global 2025/26 sugar production of 189.318 MMT (+4.7% y/y) and a substantial global sugar surplus of 41.188 MMT (+7.5% y/y). This forecast is supported by expectations of significantly higher output from India (NFCSF: +19% y/y to 35 MMT for 2025/26; USDA FAS: +25% y/y to 35.3 MMT) due to favorable monsoons (forecast at 105% of long-term average) and increased acreage. Similarly, Brazil's 2025/26 production is anticipated by USDA FAS to rise 2.3% y/y to a record 44.7 MMT, and Thailand's 2025/26 output is expected to climb 2% y/y to 10.3 MMT.

Despite this dominant bearish narrative for 2025/26, several conflicting signals exist for the nearer term, particularly the 2024/25 season. The International Sugar Organization (ISO) on May 15 raised its 2024/25 global sugar deficit forecast to a 9-year high of -5.47 MMT and simultaneously cut its 2024/25 global production estimate to 174.8 MMT. Current production in Brazil's Center-South region for the 2025/26 crop (which starts April 2024) is lagging, with H1 May output down 6.8% y/y and cumulative output down 22.7% y/y per Unica. Conab also projects Brazil's overall 2024/25 production (which largely corresponds to the same crop year) to fall 3.4% y/y to 44.118 MMT due to adverse weather, including an estimated 5 MMT sugarcane loss from fires noted by Green Pool. In India, while 2025/26 prospects are strong, ISMA projects 2024/25 production to fall 17.5% y/y to a 5-year low of 26.2 MMT, with Oct 1-May 15 output already down 17% y/y, and 2024/25 exports likely limited to 800,000 MT. Nevertheless, the market appears to be heavily discounting these current-season (2024/25) tightness indicators, prioritizing the larger projected supply for 2025/26. The USDA also forecasts record 2025/26 global consumption at 177.921 MMT (+1.4% y/y) but sees 2025/26 global ending stocks climbing 7.5% y/y to 41.188 MMT.

Key Decisions for Investors

• The prevailing outlook for a significant global sugar surplus in 2025/26, driven by projected record production in key regions, suggests continued downward pressure on prices and warrants caution for investors considering outright long positions.
• Investors should closely monitor near-term supply developments, particularly Brazil's current crop progress impacted by adverse weather and India's reduced 2024/25 output and limited exports, as these factors could introduce short-term price volatility or offer temporary support levels against the broader bearish trend.
• Key external variables, including crude oil price trends influencing ethanol production economics and the Brazilian real's exchange rate affecting export competitiveness, remain critical watchpoints for potential shifts in sugar market dynamics.
• While sugar prices are trading at multi-year lows, potentially signaling value, the strong fundamental headwinds from the anticipated 2025/26 supply surge indicate that any sustained price recovery would likely require significant downward revisions to production forecasts or unexpected positive demand shocks.