Global Sugar Supply Surge Triggers Market Volatility: Fund Positioning Shifts Amid Production Boom

Sugar futures experienced a significant rally on Friday, with March New York contracts climbing +2.68% and March London ICE white sugar advancing +2.44%, as fund investors unwound short positions ahead of the three-day US weekend triggered by the Martin Luther King Day holiday. This upward momentum followed sharp declines throughout the week, as both NY sugar and London sugar had touched their lowest levels in one and two months respectively on Thursday.

Supply Dynamics: How is Sugar Made Across Major Producing Nations

The fundamental pressure on sugar prices stems from a remarkable surge in global sugar production. India has emerged as a key driver of this expansion, with the National Federation of Cooperative Sugar Factories Ltd. reporting that the nation’s 2025-26 sugar output reached 15.9 MMT between October 1 and January 15, representing a +21% year-over-year increase. The India Sugar Mill Association (ISMA) projects even more substantial growth, raising its 2025-26 production forecast to 31 MMT from an earlier 30 MMT estimate—an 18.8% leap compared to the prior season.

Production methodologies in India are shifting toward greater export capacity. The ISMA reduced its estimate for ethanol-destined sugar to 3.4 MMT from 5 MMT, effectively freeing up additional supply for export markets. India’s food ministry has permitted mills to export 1.5 MMT during the 2025-26 season, a strategic decision to alleviate domestic oversupply conditions.

Brazil’s production landscape is equally bullish for global supplies. Unica reported that Center-South sugar output through mid-December reached 40.158 MMT, a +0.9% year-over-year expansion. Notably, the proportion of cane processed specifically for sugar production increased to 50.91% in 2025-26, up from 48.19% in 2024-25, signaling heightened sugar-focused crushing operations.

Thailand, the world’s third-largest producer and second-largest exporter, is also contributing to the supply glut. The Thai Sugar Millers Corp projects a +5% year-over-year increase in the 2025-26 crop to 10.5 MMT.

Market Structure and Fund Positioning

The Commitment of Traders (COT) data reveals a historically elevated fund long position in London ICE white sugar futures. As of the latest weekly report, funds increased their net long positions by 4,544 contracts to reach 48,203—an all-time high since 2011 data began. Such concentrated long positioning creates vulnerability to sharp reversal should market sentiment shift.

Global Supply-Demand Outlook

The International Sugar Organization (ISO) forecasts a 1.625 million MT surplus in 2025-26, following a 2.916 million MT deficit in 2024-25. The organization projects global sugar production will rise +3.2% year-over-year to 181.8 million MT, driven by increased output from India, Thailand, and Pakistan.

Covrig Analytics initially estimated the 2025-26 global surplus at 4.1 MMT but subsequently raised this projection to 4.7 MMT. Sugar trader Czarnikow presents an even more bearish scenario, estimating an 8.7 MMT global surplus for 2025-26.

The USDA’s December 16 bi-annual report provided comprehensive production forecasts. The agency projects global 2025-26 sugar production will climb +4.6% year-over-year to a record 189.318 MMT, while consumption is expected to rise only +1.4% to 177.921 MMT. The resulting imbalance is reflected in the USDA’s projection that global sugar ending stocks will decline -2.9% year-over-year to 41.188 MMT.

Country-Specific Production Forecasts

Brazil’s outlook carries particular significance for long-term pricing. The USDA’s Foreign Agricultural Service (FAS) projects Brazil’s 2025-26 production will reach a record 44.7 MMT, representing +2.3% year-over-year growth. However, Safras & Mercado, a consulting firm, paints a contrasting picture for subsequent seasons, forecasting that Brazil’s 2026-27 production will contract by -3.91% to 41.8 MMT from the 43.5 MMT expected in 2025-26. This firm also anticipates Brazilian exports will fall -11% year-over-year to 30 MMT in 2026-27.

For India, the FAS predicts an even more dramatic production expansion, with 2025-26 sugar output increasing 25% year-over-year to 35.25 MMT, driven by favorable monsoon patterns and expanded cultivation acreage.

Thailand’s 2025-26 production is forecast to increase +2% year-over-year to 10.25 MMT according to FAS estimates.

Price Implications and Market Direction

The combination of record global production forecasts, elevated fund positioning, and mounting inventory expectations has created substantial headwinds for sugar prices. While the recent Friday rally reflected technical short covering rather than fundamental demand improvements, the underlying supply dynamics suggest sustained downward pressure on prices may resume once holiday-driven positioning adjustments complete.