Sugar prices experienced a sharp rally on Friday, with July NY world sugar #11 (SBN26) closing up +0.34 (+2.33%) and August London ICE white sugar #5 (SWQ26) rising +7.60 (+1.73%). This surge pushed NY sugar to a 3.5-week high, driven primarily by mounting concerns over a potential reduction in global output as sugar mills in key producing regions divert cane crushing towards ethanol production.
Ethanol Production Shifts Drive Sugar Scarcity
The core catalyst for the recent price appreciation stems from the dynamic interplay between sugar and ethanol markets. Higher gasoline prices, which saw gasoline (RBM26) surge to a 3.75-year high on Thursday, are making ethanol production significantly more attractive for sugar mills. This economic incentive is prompting a strategic shift, particularly in Brazil, the world’s largest sugar producer, where mills are increasingly prioritizing ethanol over sugar.
Green Pool Commodity Specialists underscored this trend on Friday, revising their global 2026/27 sugar deficit estimate sharply upwards to -4.30 million metric tons (MMT) from a previous estimate of -1.66 MMT. This significant adjustment directly attributes the larger deficit to the anticipated shift towards higher ethanol production at the expense of sugar. Data from Unica further supports this, reporting that 2026/27 Brazil Center-South sugar production in the first half of April fell -11.9% year-over-year to 647 MT. Crucially, mills in the region cut the amount of cane crushed for sugar production to 32.9% from 44.7% last year, illustrating the pronounced pivot.
Conab, in its initial report for the new sugar season, corroborated these expectations, forecasting that 2026/27 Brazil sugar output will decline by -0.5% to 43,952 MT, while ethanol output is projected to climb by +7.2% year-over-year to 29,259 million liters. The USDA also previously forecast Brazil’s 2026/27 sugar production at 42.5 MMT, down -3% year-over-year, explicitly citing millers crushing more cane for ethanol than for sugar.
Global Surplus Estimates Shrink
Beyond Brazil, a broader reassessment of global sugar surpluses is contributing to the bullish sentiment. Several analytical firms have recently scaled back their projections, indicating a tighter market than previously anticipated. Covrig Analytics, for instance, cut its 2026/27 global sugar surplus estimate to 800,000 MT from 1.4 MMT. Similarly, sugar trader Czarnikow significantly reduced its 2026/27 global sugar surplus estimate to 1.1 MMT from 3.4 MMT in February, and also lowered its 2025/26 surplus estimate to 5.8 MT from 8.3 MMT.
These revisions suggest a rapid shift in market perception, especially considering that just last month, NY sugar had fallen to a 5.5-year low in the nearest futures contract amid expectations of abundant global supplies and tepid demand. This highlights the volatility and sensitivity of the sugar market to new supply-side information.
India’s Complex Role in Global Supply
India, as the world’s second-largest sugar producer, plays a pivotal role in global supply dynamics. The outlook from India presents a mixed picture that adds complexity to the global supply narrative. Last month, sugar prices were pressured when India’s Food Secretary stated the government had no plans to ban sugar exports this year, easing concerns about potential diversions to ethanol following crude oil supply disruptions from the Iran war.
Indeed, India’s government approved an additional 500,000 MT of sugar for export for the 2025/26 season, supplementing the 1.5 MMT approved in November. The USDA on Thursday further supported the notion of ample Indian supply, expecting a 2026/27 sugar surplus in India of 2.5 MMT, marking the first surplus in two years. This contrasts with India’s previous introduction of a quota system for sugar exports in 2022/23 after late rains reduced production.
Recent production figures from India show a robust performance, with India’s National Federation of Cooperative Sugar Factories Ltd. reporting that 2025-26 sugar production from October 1 to April 15 was up +7.7% year-over-year to 27.48 MMT. The Indian Sugar and Bio-energy Manufacturers Association (ISMA) projected India’s 2025/26 sugar production at 29.3 MMT, up 12% year-over-year, though this was below an earlier projection of 30.95 MMT. Interestingly, ISMA also cut its estimate for sugar used for ethanol production in India to 3.4 MMT from a July forecast of 5 MMT, which could potentially allow India to boost its sugar exports further, partially offsetting deficits elsewhere.
Other Supply Concerns and Divergent Forecasts
Beyond the ethanol-sugar dynamic, other factors are contributing to supply concerns. The ongoing closure of the Strait of Hormuz, for instance, is providing some support for sugar prices. According to Covrig Analytics, this closure has curbed approximately 6% of the world’s sugar trade, thereby constraining refined sugar output.
Looking at broader forecasts, the International Sugar Organization (ISO) on February 27 forecasted a +1.22 MMT sugar surplus in 2025-26, following a -3.46 MMT deficit in 2024-25. ISO attributed this projected surplus to increased sugar production in India, Thailand, and Pakistan, forecasting a +3.0% year-over-year rise in global sugar production to 181.3 MMT in 2025-26. In contrast, the USDA, in its bi-annual report released on December 16, projected global 2025/26 sugar production to climb +4.6% year-over-year to a record 189.318 MMT, with global human sugar consumption increasing +1.4% year-over-year to a record 177.921 MMT. The USDA also forecast that 2025/26 global sugar ending stocks would fall by -2.9% year-over-year to 41.188 MMT, even as its Foreign Agricultural Service (FAS) predicted significant production increases for Brazil (+2.3% y/y to 44.7 MMT), India (+25% y/y to 35.25 MMT), and Thailand (+2% y/y to 10.25 MMT) for the same period.
The current sharp rally in sugar prices reflects an immediate market reaction to the tightening supply outlook, particularly the significant shift in Brazil’s cane allocation towards ethanol. While India’s robust production and export potential offer some counterbalancing forces, the revised global deficit estimates from key analysts suggest that the market is bracing for a period of constrained sugar availability, pushing prices higher despite some longer-term forecasts of surplus.
