Global sugar prices experienced an upward trend today, with October NY world sugar #11 (SBV26) rising by +0.13 (+0.88%) and August London ICE white sugar #5 (SWQ26) closing up +5.30 (+1.14%). This market movement follows Brazil’s approval of a higher mandatory ethanol blend in its gasoline, a move that could significantly influence ethanol demand and potentially lead Brazilian sugar mills to divert more sugarcane towards ethanol production at the expense of sugar output.
Brazil’s Policy Shift on Ethanol
The National Energy Policy Council of Brazil has enacted a resolution that elevates the mandatory blend of anhydrous ethanol in gasoline from the current 30% to 32%. This policy adjustment is a key driver behind the current market sentiment, suggesting a potential shift in Brazil’s agricultural commodity focus.
Market Influences and Recent Trends
The gains in sugar prices come after a recent dip to two-week lows on Monday, which was attributed to an improvement in India’s monsoon rains. India’s cumulative monsoon rainfall stood at 19% below normal as of July 13, a notable improvement from the 42% deficit recorded on June 30, according to the India Meteorological Department. However, the current upward momentum in sugar prices is also being supported by a concurrent strength in crude oil prices. WTI crude oil (CLQ26) has climbed over 1% to a one-month high, which typically benefits ethanol prices and can incentivize global sugar mills to prioritize ethanol production over sugar, thereby reducing available sugar supplies.
Concerns Over Indian Monsoon and Global Supply
Sugar prices have seen considerable volatility recently. Over the past three weeks, NY sugar reached a two-month nearest-futures high last Wednesday, while London sugar hit a 10.25-month high last Tuesday. These rallies have been fueled by concerns over weak monsoon rains in India, the world’s second-largest sugarcane producer. Projections from India’s Earth Science Ministry suggest this year’s monsoon could be the weakest in 11 years, potentially impacting sugar yields and the overall sugarcane harvest. The monsoon season in India runs from June through September.
Brazil’s Ethanol Production Focus
Data from Brazil further supports the narrative of increased ethanol focus. Unica reported on June 22 that Brazil’s Center-South sugar production for the 2026/27 season through May was 6.838 million metric tons (MMT), a 2.0% year-on-year decrease, as millers increased ethanol output. The proportion of sugarcane used for sugar production by Brazil’s mills dropped to 41.42% from 50.09%, while cane crushing for ethanol production rose to 58.38% from 49.91% in the previous year. Sugar trader Czarnikow, on June 11, revised its global 2026/27 sugar balance estimate from a surplus of 1.4 MMT to a deficit of -100,000 metric tons, citing the increased ethanol production by Brazilian mills amidst rising crude oil prices.
El Niño and Weather Pattern Risks
The potential impact of dry weather associated with an El Niño event also presents a bullish factor for sugar prices. An El Niño is likely to reduce rainfall in key sugar-producing regions such as Brazil, India, and Thailand. The US Climate Prediction Center indicated last Wednesday that the El Niño pattern, which emerged across the equatorial Pacific last month, could be one of the strongest in over 75 years. India’s weather office recently lowered its cumulative rainfall estimate for the June-September monsoon season to 90% of the long-term average, down from a previous forecast of 92%.
Production Forecasts and Market Balances
Official forecasts highlight a potential divergence in production. Conab, in its initial report for the new sugar season on April 28, projected a 0.5% decline in Brazilian sugar output for 2026/27 to 43.952 MMT, while ethanol output was forecast to increase by 7.2% year-on-year to 29.259 million liters. The Indian Sugar and Bio-energy Manufacturers Association (ISMA) revised its 2025/26 India sugar production forecast to 32 MMT, down from 32.4 MMT, and projected Indian sugar exports of 800,000 metric tons. The USDA, in its May report, expects a 2026/27 sugar surplus in India of 2.5 MMT, marking the first surplus in two years. However, for the 2026/27 season, the International Sugar Organization (ISO) forecasts a global sugar production decrease of 1.15% year-on-year to 180 MMT, leading to a global deficit of -262,000 metric tons, largely due to the potential impact of El Niño on harvests in India and Thailand. Other analysts, including StoneX and Covrig Analytics, have also projected deficits or reduced surplus forecasts for the 2026/27 season.
The USDA’s biannual report in May projected a 6.5% year-on-year fall in global 2026/27 sugar production to 184.854 MMT, while human sugar consumption is expected to rise by 0.4% to a record 179.991 MMT. The USDA’s Foreign Agricultural Service (FAS) predicted a 3.0% year-on-year decline in Brazil’s 2026/27 sugar production to 42.5 MMT. Conversely, FAS anticipates India’s 2026/27 sugar production to increase by 12% year-on-year to 33.6 MMT, driven by favorable monsoons and increased acreage. Thailand’s production is forecast to fall by 15.6% year-on-year to 9.5 MMT.
