Abundant Global Supplies Weigh on Sugar Prices

Sugar prices have declined, with NY sugar futures hitting a near 4-year low and London sugar a 3-3/4 year low, driven by expectations of a global sugar surplus; the USDA projects a record 189.318 MMT production for 2025/26, alongside a 41.188 MMT surplus. Prices saw a partial recovery due to a WTI crude oil rally, potentially diverting sugarcane to ethanol production, but forecasts of increased production in India and Thailand continue to weigh on the market, despite reduced output in Brazil and a lowered production forecast from the Indian Sugar and Bio-energy Manufacturers Association.

Analysis

Sugar prices have extended a significant selloff, with NY sugar #11 (SBN25) reaching a nearly 4-year nearest-futures low and London sugar #5 (SWQ25) a 3-3/4 year low, primarily driven by the USDA's May 22 projection of a substantial global sugar surplus for the 2025/26 season. The USDA forecasts record global production of 189.318 million metric tons (MMT), a +4.7% year-over-year (y/y) increase, and a global sugar surplus of 41.188 MMT, representing ending stocks up +7.5% y/y. This bearish projection is underpinned by anticipated production increases: India's 2025/26 output is projected by its National Federation of Cooperative Sugar Factories to climb +19% y/y to 35 MMT due to larger acreage, and the USDA FAS also sees India's 2025/26 production rising +25% y/y to 35.3 MMT, supported by forecasts of an above-normal monsoon (105% of average rainfall). Additionally, the USDA FAS projects Brazil's 2025/26 sugar production to rise +2.3% y/y to a record 44.7 MMT, and Thailand's 2025/26 output is expected to increase +2% y/y to 10.3 MMT, while Thailand's 2024/25 production was already reported up +14% y/y to 10.00 MMT by its Office of the Cane and Sugar Board. This longer-term bearish view, however, contrasts with several indicators for the current 2024/25 crop year. 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 cut its global production estimate to 174.8 MMT. Conab projects Brazil's 2024/25 production to fall -3.4% y/y due to adverse weather, and Unica reported Brazil's Center-South sugar production for the first half of May (part of its 2025/26 campaign) fell -6.8% y/y, with cumulative output through mid-May down -22.7% y/y. India's ISMA also projects a significant -17.5% y/y drop in 2024/25 production to a 5-year low of 26.2 MMT, with current season output to mid-May down -17% from the same period last year, and its Food Secretary anticipates lower 2024/25 exports of only 800,000 MT, below earlier expectations of 1 MMT. A recent WTI crude oil rally to a 1-1/2 month high provided temporary price support, sparking short covering as higher crude prices may incentivize diverting more cane crushing toward ethanol production, thereby reducing sugar supplies.

Key Decisions for Investors

• Investors should acknowledge the prevailing bearish sentiment driven by the USDA's 2025/26 global surplus forecast, which has pushed prices to multi-year lows, but remain alert to potential short-covering rallies, particularly if crude oil strength persists.
• Closely monitor the evolving 2024/25 supply situation, focusing on Brazilian production data from Unica and Conab (especially weather impacts) and Indian developments regarding the monsoon, ISMA production figures, and actual export volumes, as these could significantly diverge from the USDA's longer-term outlook and introduce near-term volatility.
• Carefully assess the discrepancy between the USDA's bearish 2025/26 surplus projections and the tighter 2024/25 market forecasts from entities like the ISO, ISMA, and Conab, as the convergence or continued divergence of these outlooks will be critical for determining future price direction.