Sugar prices concluded Thursday’s trading session with a mixed performance, demonstrating consolidation above the two-month lows observed earlier in the week. The July NY world sugar #11 (SBN26) contract edged up by +0.13 (+0.97%), while the Aug London ICE white sugar #5 (SWQ26) contract saw a marginal decline of -0.10 (-0.02%), reflecting a complex interplay of short-term supply adjustments and persistent long-term production anxieties.
Immediate Market Drivers: Strait Reopening and Dollar Strength
The initial downward pressure on sugar prices earlier in the week, which saw NY sugar fall to a two-month low on Monday, was largely attributed to the reopening of the Strait of Hormuz. This development has significantly eased global supply disruptions, a factor expected to reduce global shipping rates, insurance costs, and fuel prices. Such reductions directly translate into lower costs for sugar importers, contributing to a bearish sentiment in the short term.
Further compounding the downward pressure was the recent strength of the U.S. dollar. The dollar index ($DXY) rallied to a 13-month high on Wednesday, making dollar-denominated commodities like sugar more expensive for holders of other currencies, thereby undercutting prices.
Mounting Supply Concerns Contain Losses
Despite the immediate bearish factors, losses in sugar prices were contained by growing concerns over potential supply shortages stemming from adverse weather conditions and shifts in production priorities. India, the world’s second-largest sugar producer, faces the prospect of weak monsoon rains, which could significantly lower sugar yields and reduce the country’s sugarcane harvest. India’s Meteorological Department reported on Wednesday that cumulative monsoon rainfall was 42% below normal as of June 24, with India’s Earth Science Ministry warning that this year’s monsoon could be the weakest in 11 years. India’s monsoon season typically runs from June through September.
Brazil, another major producer, is seeing a notable shift towards ethanol production. Unica reported on Monday that 2026/27 Brazil Center-South sugar production through May was 6.838 MMT, a decrease of -2.0% year-over-year. This reduction is due to millers ramping up ethanol production, with the percentage of sugarcane used for sugar dropping to 41.42% from 50.09% last year, while cane crushing for ethanol production rose to 58.38% from 49.91%.
El Niño Threatens Global Production
A significant bullish factor for sugar prices is the confirmed emergence of an El Niño weather pattern. Japan’s Meteorological Agency confirmed last Wednesday that an El Niño had formed across the equatorial Pacific. This phenomenon is likely to curb rainfall in key sugar-producing regions, including Brazil, India, and Thailand, which collectively represent the world’s three largest sugar-producing areas. The US National Oceanic and Atmospheric Administration (NOAA) estimates a 67% probability of a “Super El Niño” this year, potentially the strongest ever recorded. 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 an April forecast of 92%.
Conflicting Production Forecasts Highlight Market Uncertainty
Various industry organizations and government agencies have released conflicting forecasts for upcoming sugar seasons, underscoring the market’s uncertainty:
- Brazil: Conab, in its initial report on April 28, forecast a 0.5% decline in 2026/27 Brazilian sugar output to 43.952 MMT, while ethanol output is projected to climb by 7.2% year-over-year. Similarly, the USDA on April 21 forecast Brazil’s 2026/27 sugar production at 42.5 MMT, down 3% year-over-year, citing the increased shift to ethanol.
- India: The Indian Sugar and Bio-energy Manufacturers Association (ISMA) revised its 2025/26 India sugar production forecast to 32 MMT on April 7, down from an earlier projection of 32.4 MMT, and projects 2025/26 sugar exports of 800,000 MT. Conversely, the USDA on April 30 said it expects a 2026/27 sugar surplus in India of 2.5 MMT, marking the first surplus in two years.
- Global Balance: Sugar trader Czarnikow on June 11 cut its global 2026/27 sugar balance estimate from a surplus of 1.4 MMT to a deficit of -100,000 MT. The International Sugar Organization (ISO) on May 18 forecasted a record global sugar crop for the 2025/26 season at 182 MMT, with a surplus of 2.2 MMT. However, for 2026/27, ISO forecasts a global sugar deficit of -262,000 MT, with production falling by 1.15% year-over-year to 180 MMT, primarily due to El Niño’s impact on India and Thailand. StoneX on May 20 forecast a 2026/27 deficit of -550,000 MT, while Covrig Analytics cut its surplus forecast to 100,000 MT from a May estimate of 380,000 MT.
In contrast to some of the more recent bearish outlooks for 2026/27, the USDA’s bi-annual report released on December 16 projected a more optimistic scenario for 2025/26. It forecast global 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 predicted that 2025/26 global sugar ending stocks would fall by 2.9% year-over-year to 41.188 MMT, with Brazil’s production rising 2.3% to a record 44.7 MMT, India’s increasing 25% to 35.25 MMT, and Thailand’s growing 2% to 10.25 MMT, driven by favorable monsoon rains and increased acreage.
The mixed settlement in sugar prices on Thursday reflects a market grappling with immediate logistical improvements and dollar strength, while simultaneously weighing significant long-term supply risks. The potential for a strong El Niño event, coupled with Brazil’s increasing pivot to ethanol production and India’s uncertain monsoon, suggests that underlying bullish pressures related to future supply could continue to provide support, preventing a deeper decline despite short-term easing factors.
