Global Supply Surge Pressures Sugar Market Despite Short Covering Rally

The sugar market faced mounting headwinds from anticipated production increases across major suppliers, though a modest year-end fund short covering provided temporary relief to prices. March NY world sugar #11 closed Wednesday with a gain of +1.15%, while March London ICE white sugar #5 rose +0.35%, both recovering from recent weakness as traders unwound bearish positions heading into the new year.

Supply Expansion from India and Brazil Weighs on Sentiment

Production forecasts from the world’s largest sugar suppliers paint a picture of market oversupply in 2025/26. India, the second-largest producer globally, is poised to significantly boost output following favorable monsoon conditions. The USDA’s Foreign Agricultural Service projects India’s 2025/26 production will surge 25% year-over-year to 35.25 million metric tons (MMT), while the India Sugar Mill Association raised its estimate to 31 MMT in November from an earlier 30 MMT forecast, representing an 18.8% annual increase.

Brazil, the world’s leading sugar producer, is on track for record output. Conab, Brazil’s crop forecasting agency, raised its 2025/26 production estimate to 45 MMT in November, with the USDA’s FAS predicting an even higher 44.7 MMT, a 2.3% year-over-year increase. Recent data from Unica showed that Brazil’s Center-South sugar output through November climbed 1.1% y/y to 39.904 MMT, while mills are dedicating more cane to sugar production rather than ethanol, with the sugar cane ratio rising to 51.12% in the 2025/26 season.

Pricing Pressure Intensifies Amid Global Surplus Concerns

The convergence of these supply increases is creating significant headwinds for sugar pricing. The International Sugar Organization forecast a 1.625 million MT surplus for 2025/26, following a 2.916 million MT deficit in the prior year, driven by expanded production across India, Thailand, and Pakistan. Global sugar production is expected to climb 4.6% year-over-year to a record 189.318 MMT according to the USDA, while global consumption rises more modestly at 1.4% to 177.921 MMT.

Sugar trader Czarnikow has become even more bearish, raising its global 2025/26 surplus estimate to 8.7 MMT in November, up 1.2 MMT from its September projection. Thailand, the world’s third-largest producer and second-largest exporter, is also expanding capacity, with the Thai Sugar Millers Corp projecting a 5% annual increase to 10.5 MMT for the 2025/26 crop.

Export Dynamics Add Complexity to Market Outlook

India’s potential for significantly increased sugar exports represents an additional bearish factor. The government is considering permitting additional exports to manage a domestic supply glut, having already allowed 1.5 MMT of exports for the 2025/26 season. India’s food ministry previously introduced export quotas in 2022/23 following production shortfalls, but improving supply conditions are now prompting a reversal of those restrictive policies. The India Sugar Mill Association reported on Wednesday that domestic production from October 1 through December 31 reached 11.83 MMT, a 24% year-over-year jump.

Conversely, Brazil is expected to face a production decline in 2026/27, with consulting firm Safras & Mercado forecasting output will contract 3.91% to 41.8 MMT from 43.5 MMT in 2025/26, while exports are projected to fall 11% to 30 MMT. These longer-term supply constraints offer minimal support to the current sugar market, which remains fixated on near-term oversupply dynamics.

Near-Term Recovery Tempered by Structural Headwinds

Wednesday’s uptick in sugar prices was partially attributable to year-end positioning adjustments as funds covered short positions, though the broader fundamental backdrop remains unfavorable. Earlier in the session, sugar faced selling pressure as a rising dollar index—which reached 1-week highs—weighed on commodities generally. The prior week had seen NY sugar approach 2.25-month highs following Brazil supply concerns, but that rally proved unsustainable given the weight of evidence pointing to significant 2025/26 surplus production globally.