Strength in Crude Oil Sparks Short Covering in Sugar Futures

Sugar prices saw modest gains Tuesday, recovering from earlier lows driven by expectations of increased sugar production in India and globally, as highlighted by the USDA's projection of a record 189.318 MMT for 2025/26. The recovery was supported by a rally in crude oil, potentially diverting cane crushing towards ethanol production. Conflicting data from ISMA, projecting a significant drop in India's 2024/25 sugar production, and the ISO, forecasting a 9-year high global sugar deficit, add uncertainty to the overall supply outlook.

Analysis

Sugar prices (July NY world sugar #11 +0.12%, August London ICE white sugar #5 +0.59%) experienced a slight recovery, buoyed by short covering as WTI crude oil advanced, potentially increasing sugarcane diversion to ethanol production. This modest uptick followed NY sugar reaching a 3-3/4 year nearest-futures low and London sugar a 4-1/2 month low, underscoring persistent bearish sentiment. The dominant downward pressure originates from forecasts of a substantial global sugar surplus for the 2025/26 marketing year, with the USDA projecting record global production of 189.318 MMT (+4.7% y/y) and a surplus of 41.188 MMT (+7.5% y/y). This surplus outlook is underpinned by anticipated production increases for 2025/26: India's output is seen rising significantly (+25% y/y to 35.3 MMT per USDA FAS, or +19% y/y to 35 MMT per India's National Federation), and Thailand's climbing +2% y/y to 10.3 MMT, supported by favorable Indian monsoon forecasts. For Brazil, the USDA FAS projects a 2025/26 production increase of +2.3% y/y to a record 44.7 MMT. However, early data for Brazil's new 2025/26 Center-South crop (which commenced April/May 2024) from Unica showed H1 May production falling -6.8% y/y and cumulative output through mid-May down -22.7% y/y, suggesting potential headwinds for this key producer that contrast with the USDA's annual forecast. Further complicating the outlook, the International Sugar Organization (ISO) projects a 9-year high global deficit of -5.47 MMT for the 2024/25 season, cutting its global production estimate. This tighter near-term view is supported by ISMA forecasting India's 2024/25 production to drop -17.5% y/y to a 5-year low, with current season (Oct-May 15) output already down -17% y/y, and Conab projecting Brazil's 2024/25 production (ending March 2025) to fall -3.4% y/y due to adverse weather.

Key Decisions for Investors

• Investors should closely monitor actual production figures from Brazil and India, particularly early data for Brazil's 2025/26 crop and India's 2024/25 outturn, to reconcile conflicting forecasts from agencies like the USDA, ISO, and Unica.
• The divergence between the ISO's 2024/25 deficit projection and the USDA's 2025/26 surplus outlook, coupled with conflicting early signals for Brazil's 2025/26 crop, indicates heightened potential for price volatility; trading strategies should account for this uncertainty.
• Continue to track crude oil price movements and Indian export policy announcements, as these factors are exerting significant short-term influence on sugar prices through ethanol economics and supply availability.