Strength in Crude Oil and the Brazilian Real Lifts Sugar Prices

Sugar prices rose Monday, driven by strength in crude oil and the Brazilian real, prompting short covering in sugar futures. The rise comes amidst a two-month downtrend spurred by expectations of a global sugar surplus, with the USDA projecting a record 189.318 MMT production for 2025/26. Despite some supportive factors like reduced sugar production in Brazil and a raised global sugar deficit forecast by the ISO, the overall outlook remains bearish due to expectations of increased production in India and Thailand.

Analysis

Sugar prices experienced a notable uptick on Monday, with July NY sugar #11 (SBN25) rising 1.09% and August London ICE white sugar #5 (SWQ25) increasing 1.55%. This rally was primarily driven by a surge in WTI crude oil to a 2-1/4 month high, potentially diverting cane to ethanol, and a rally in the Brazilian real to an 8-month high, discouraging exports from Brazil, which collectively spurred short covering. However, this occurred within a broader two-month downtrend that saw NY sugar hit a 4-year nearest-futures low and London sugar a 3-3/4 year low last Friday, reflecting strong expectations of a global sugar surplus. The USDA's May 22 report is a key driver of this bearish sentiment, projecting global 2025/26 sugar production to increase by 4.7% year-over-year (y/y) to a record 189.318 MMT, leading to a global sugar surplus of 41.188 MMT, up 7.5% y/y. This outlook is supported by anticipated production increases in key regions: India's 2025/26 output is projected to climb between 19% y/y (National Federation of Cooperative Sugar Factories to 35 MMT) and 25% y/y (USDA FAS to 35.3 MMT), fueled by larger acreage and an expected above-normal monsoon, and Thailand's 2025/26 production is also forecast by the USDA FAS to climb +2% y/y to 10.3 MMT.

Despite these strong bearish projections for the 2025/26 season, several factors provide near-term support and introduce complexity. 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, indicating a tighter market for the current season. Current Brazilian production data from Unica shows Center-South sugar output for the first half of May (labeled by the article as part of the 2025/26 season) fell -6.8% y/y, with cumulative output through mid-May down -22.7% y/y to 3.989 MMT. Additionally, Conab, Brazil's crop agency, projects Brazil's 2024/25 total sugar production to fall -3.4% y/y to 44.118 MMT due to adverse weather and crop fires. Indian data also presents some ambiguity for the 2024/25 season, with ISMA forecasting a -17.5% y/y drop in production to a 5-year low of 26.2 MMT, current season output (Oct 1-May 15) already down -17%, and Indian Food Secretary Chopra suggesting 2024/25 exports may only total 800,000 MT, below earlier expectations.

Key Decisions for Investors

• Investors should view the recent sugar price rally with caution, as it contrasts with significant bearish fundamentals driven by projected record global production and surplus primarily for the 2025/26 season.
• Monitor closely the developing weather patterns in India and Brazil, alongside actual production figures from these key exporters, which will clarify the conflicting outlooks between the tighter 2024/25 season suggested by ISO and some near-term production data, versus the bearish 2025/26 USDA forecast.
• Factor in the continued influence of crude oil prices and Brazilian Real movements on short-term price volatility, offering potential trading or hedging opportunities while assessing the dominant supply narratives for different crop years.