Agricultural Shorts Trigger Sugar Rally as Global Supply Picture Shifts

Global sugar markets experienced a modest recovery on Wednesday, with both New York and London contracts settling higher on renewed short covering activity heading into year-end. This technical lift underscores ongoing uncertainty surrounding the commodity’s medium-term supply dynamics.

Technical Rebound Masks Structural Challenges

New York March sugar futures (SBH26) advanced 0.17 cents to close at +1.15%, while London ICE white sugar (SWH26) gained 1.50 cents (+0.35%) on the session. The gains came as fund positions unwound ahead of calendar year-end, providing a temporary cushion against earlier weakness triggered by a stronger dollar index (DXY00), which had climbed to 1-week highs and pressured most commodity prices.

Production Forecasts Paint Mixed Picture

The sugar complex faces divergent supply signals from major producing regions. Brazil’s output trajectory appears robust, with Unica reporting that Center-South cumulative sugar production through November climbed 1.1% year-over-year to 39.904 million metric tons (MMT). The crush ratio for sugar rose to 51.12% in 2025/26 versus 48.34% in the prior season, signaling increased prioritization of sugar over ethanol.

However, consulting firm Safras & Mercado projects a decline ahead, forecasting Brazil’s 2026/27 sugar production will slip 3.91% to 41.8 MMT from 43.5 MMT expected in 2025/26. Export volumes are anticipated to contract more sharply, falling 11% year-over-year to 30 MMT.

India, the world’s second-largest producer, is ramping up output substantially. The India Sugar Mill Association (ISMA) raised its 2025/26 production estimate to 31 MMT in November, up 18.8% year-over-year, while simultaneously cutting ethanol conversion estimates to 3.4 MMT from 5 MMT previously. Early-season crushing data confirms momentum, with October-December output jumping 24% year-over-year to 11.83 MMT.

Thailand, the world’s third-largest producer, is projected to increase output 5% year-over-year to 10.5 MMT in 2025/26, according to the Thai Sugar Millers Corp.

Global Surplus Looms Despite Mixed Signals

The International Sugar Organization (ISO) has positioned itself bearishly on the commodity, forecasting a 1.625 MMT surplus in 2025-26 following a 2.916 MMT deficit in the prior year. The organization attributes this swing to increased production across India, Thailand, and Pakistan, projecting global output will rise 3.2% year-over-year to 181.8 MMT. Global consumption is expected to increase only 1.4% year-over-year, creating a widening imbalance.

Sugar trader Czarnikow has taken an even more cautious stance, boosting its global 2025/26 surplus estimate to 8.7 MMT, representing a 1.2 MMT increase from its September projection of 7.5 MMT.

USDA Signals Record Production Despite Demand Growth

The U.S. Department of Agriculture’s December 16 bi-annual forecast underscores structural oversupply concerns. The USDA projects global 2025/26 sugar production will climb 4.6% year-over-year to a record 189.318 MMT while human consumption rises only 1.4% year-over-year to 177.921 MMT. Ending global stocks are anticipated to fall 2.9% year-over-year to 41.188 MMT, a modest decline relative to production gains.

The USDA’s Foreign Agricultural Service predicts Brazil will post record 2025/26 output of 44.7 MMT (+2.3% year-over-year), while India’s production is forecast to surge 25% year-over-year to 35.25 MMT, buoyed by favorable monsoon conditions and expanded sugar acreage. Thailand’s output is projected to climb 2% year-over-year to 10.25 MMT.

Near-Term Dynamics vs. Longer-Term Headwinds

While Wednesday’s short covering provided tactical support, the medium-term outlook remains constrained by record production expectations across major suppliers. India’s government has signaled willingness to permit additional sugar exports to manage domestic surpluses, having already authorized 1.5 MMT in shipments during the 2025/26 season following its quota system implementation in 2022/23.

The interplay between technical short-term recovery and fundamental oversupply continues to define the sugar complex, with investors monitoring whether production forecasts materialize and demand absorbs the projected increase in global availability.