Global Sugar Surplus Pressures Market Despite Year-End Fund Covering

Sugar prices stabilized on Wednesday following a brief decline, as year-end fund short-covering provided temporary support to the market. The March contract on the New York Futures Exchange advanced +0.17 points to close +1.15% higher, while London ICE white sugar futures rose +1.50 points (+0.35%). However, the price recovery faced headwinds as the dollar index climbed to a one-week peak, creating downward pressure on commodity valuations across the board.

Supply Surge Overshadows Technical Bounce

Despite the short-term price recovery, the fundamental backdrop remains decidedly negative for sugar. A significant production expansion across major producing nations threatens to flood global markets with additional supply throughout 2025-26, creating a structural headwind for price appreciation.

The International Sugar Organization (ISO) projects a 1.625 million metric ton surplus for the 2025-26 season, a dramatic reversal from the 2.916 million MT deficit recorded in 2024-25. This shift reflects robust output growth across India, Thailand, and Pakistan. ISO forecasts global production climbing 3.2% year-over-year to 181.8 million MT, while human consumption rises only 1.4% to 177.921 million MT—a clear mismatch tilting toward oversupply.

Private sector forecasters paint an even more pessimistic picture. Sugar trader Czarnikow elevated its 2025-26 surplus estimate to 8.7 MMT in November, up 1.2 MMT from September projections, suggesting the imbalance may be wider than official estimates indicate.

Brazil’s Record Output and Production Reallocation

Brazil’s 2025-26 sugar output is expected to reach record levels, with USDA projections targeting 44.7 MMT, representing a 2.3% year-over-year increase. This expansion comes as Brazilian mills shift a higher proportion of crushed cane toward sugar rather than ethanol production. The Center-South region, Brazil’s dominant sugar zone, processed 39.904 MMT through November, up 1.1% annually, with the sugar-to-cane ratio climbing to 51.12% from 48.34% the previous season.

However, Safras & Mercado offered a contrasting view, forecasting Brazil’s 2026-27 production will decline 3.91% to 41.8 MMT from 43.5 MMT in 2025-26. The consulting firm also predicts exports will fall 11% year-over-year to 30 MMT next season, potentially alleviating some supply pressure in the outer years.

India’s Production Surge and Export Permissions

India’s sugar production landscape shifted dramatically following improved monsoon conditions. The India Sugar Mill Association raised its 2025-26 production estimate to 31 MMT from 30 MMT, representing an 18.8% year-over-year climb. Most recently, ISMA reported that cumulative production from October 1 through December 31 jumped 24% annually to 11.83 MMT, signaling a robust crop trajectory.

The USDA’s Foreign Agricultural Service projects even more expansive growth, forecasting India’s 2025-26 output at 35.25 MMT—a 25% year-over-year surge. This production boom coincides with the Indian government’s decision to permit mills to export 1.5 MMT during the 2025-26 season, marking a shift away from the export quota system implemented in 2022-23 following earlier supply constraints.

A notable adjustment: ISMA reduced its estimate for sugar destined for ethanol conversion to 3.4 MMT from a July forecast of 5 MMT, freeing additional inventory for export and further pressuring global prices.

Thailand’s Expanding Production

Thailand, the world’s third-largest producer and second-largest exporter, is projected to boost 2025-26 output by 5% year-over-year to 10.5 MMT according to the Thai Sugar Millers Corp. The USDA’s FAS provided a slightly more conservative forecast of 10.25 MMT, still representing 2% annual growth. These increases contribute meaningfully to the global surplus outlook.

Consumption Growth Insufficient to Absorb Supply

Global sugar consumption is expected to rise 1.4% year-over-year to a record 177.921 MMT in 2025-26, according to USDA projections. While this represents historically high consumption levels, it pales in comparison to the projected 4.6% production increase, virtually guaranteeing inventory accumulation. Global ending stocks are forecast to decline 2.9% year-over-year to 41.188 MMT, though this assumes demand holds steady and no unexpected production adjustments occur.

The structural imbalance between expanding production and modest consumption growth remains the dominant price driver, suggesting that near-term technical bounces like Wednesday’s recovery will face persistent selling pressure as the season progresses.