Sugar Prices Higher on Dollar Weakness and Poor Brazil Cane Quality

Sugar prices are sharply higher today, driven by a weaker dollar index and fund short covering. Unica reported that poor cane quality in Brazil is leading millers to prioritize ethanol production over sugar, curbing sugar output. This contrasts with recent expectations of a global sugar surplus for 2025/26 from Datagro and StoneX, which had weighed on prices earlier in the week.

Analysis

Sugar prices experienced a sharp rally, with July NY world sugar #11 (SBN25) up +2.31% and August London ICE white sugar #5 (SWQ25) up +2.32%, primarily driven by a U.S. dollar index (DXY00) slump to a 2-week low, which spurred fund short covering. Further upward pressure came from Unica's report indicating that poor cane quality in Brazil's current harvest is diverting more cane towards ethanol production, thereby curbing sugar output. This development contrasts with recent bearish sentiment fueled by projections of a global sugar surplus for the 2025/26 season, with Datagro forecasting a +1.53 MMT surplus and StoneX a +3.74 MMT surplus, which had pushed prices to 1-1/2 week lows earlier in the week. The market is currently weighing conflicting supply signals: Brazil's 2025/26 Center-South sugar production for April fell -38.6% y/y to 1.58 MMT according to Unica, and Conab projected Brazil's 2024/25 sugar production to fall -3.4% y/y to 44.118 MMT due to adverse weather. Conversely, for 2025/26, USDA FAS and Conab anticipate Brazilian production increases of +2.3% and +4.0% respectively. In India, ISMA 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 (Oct 1-May 15) already down -17%, and exports potentially limited to 800,000 MT. However, the USDA FAS forecasts a +26% y/y surge in India's 2025/26 production to 35 MMT, supported by an expected above-normal monsoon. Adding to potential supply, Thailand's 2024/25 sugar production rose +14% y/y to 10.00 MMT. Globally, the International Sugar Organization (ISO) raised its 2024/25 global sugar deficit forecast to a 9-year high of -5.47 MMT, while the USDA forecasts record global 2024/25 production at 186.619 MMT but also a -6.1% y/y decline in global ending stocks.

Key Decisions for Investors

• Investors should recognize the current price strength is influenced by technical factors such as dollar weakness and short covering, amidst fundamentally mixed long-term supply outlooks.
• Closely monitor Brazil's sugar-ethanol production mix decisions and India's monsoon progress, as these are critical variables for near-term sugar supply.
• Scrutinize upcoming production and global balance reports from key agencies like Unica, Conab, ISMA, and ISO for any convergence or divergence in forecasts for the 2024/25 and 2025/26 seasons, which could provide clearer directional cues for sugar prices.
• Consider potential volatility stemming from conflicting weather reports, evolving government policies in key producing nations like India, and fluctuating currency markets.