Sugar Rally Faces Headwinds from Global Supply Glut

Global sugar markets staged a sharp rebound in recent sessions as currency weakness sparked short covering, but underlying supply pressures threaten to cap any sustained price gains. The fundamental outlook remains decidedly bearish, with major producers worldwide preparing for record or near-record harvests that risk flooding international markets.

Dollar Weakness Triggers Short Covering in Global Markets

Recent price action reflected classic technical dynamics rather than fundamental improvement. March New York sugar futures (SBH26) surged 2.59% in recent trading, while March London ICE white sugar (SWH26) climbed 3.06%, as a declining dollar index (DXY00) prompted traders to cover short positions. This rebound, however, came after sugar prices hit multi-month lows—New York contracts touched a 2.5-month bottom and London contracts plunged to five-year depths—signaling how severe selling pressure had become.

The price capitulation reflected overwhelming supply-side concerns that continue to dominate market sentiment. On the demand side, global sugar consumption is projected to reach record levels, with USDA forecasting a 1.4% year-over-year increase to 177.921 million metric tons (MMT) in 2025/26. Yet supply growth far outpaces demand expansion, virtually guaranteeing surplus conditions through multiple seasons ahead.

Expanding Production Across Major Sugar Regions Weighs on Prices

The projected global sugar production surge compounds the oversupply narrative. USDA projections point to a 4.6% year-over-year climb to a record 189.318 MMT for 2025/26, vastly exceeding consumption growth. This imbalance is being driven by accelerating output from the world’s major producing nations.

Brazil’s Record Harvest: Brazil, accounting for roughly a third of global production, is preparing its largest crop ever. Conab, the official Brazilian forecasting agency, estimates 2025/26 production at 45 MMT, up from the prior forecast of 44.5 MMT. The USDA projects even higher output at 44.7 MMT. Critically, a larger share of Brazil’s sugarcane is being crushed for sugar rather than ethanol, with the sugar ratio rising to 50.82% in 2025/26 from 48.16% the prior season. This production surge guarantees robust Brazilian export flows.

India’s Dramatic Supply Jump: India, the world’s second-largest producer, is experiencing a production explosion driven by favorable monsoon rains and expanded planting. ISMA reported output through mid-January was up 22% year-over-year to 15.9 MMT, tracking toward a full-season production of approximately 31 MMT—an 18.8% year-over-year jump from ISMA’s latest estimate. USDA projects even more dramatic growth, forecasting 2025/26 Indian production to surge 25% year-over-year to 35.25 MMT. This growth is bolstered by reduced diversion to ethanol production; ISMA cut its ethanol-use forecast to 3.4 MMT from a prior 5 MMT estimate, allowing more sugar for export.

Recognizing domestic surplus conditions, India’s government has moved to clear internal supplies. After restricting exports under a quota system imposed in 2022/23, India’s food ministry authorized 1.5 MMT of exports in the 2025/26 season. This export permission caps prices, as India’s potential export boost signals further global availability.

Thailand and Others: Thailand, the world’s third-largest producer and second-largest exporter, is projected to increase output by 2-5% year-over-year depending on forecaster, reaching approximately 10.25-10.5 MMT. This adds further export pressure, particularly in Asian markets.

Medium-term Outlook: Supply Surplus May Limit Upside

Global sugar surplus estimates vary among forecasters but all point in the same direction—oversupply will persist. Green Pool Commodity Specialists estimates a 2.74 MMT global surplus for 2025/26 and a 156,000 MT surplus for 2026/27. StoneX forecasts a 2.9 MMT 2025/26 surplus. Covrig Analytics, which had raised its surplus estimate to 4.7 MMT from 4.1 MMT, projects a moderation to 1.4 MMT in 2026/27 as weak prices discourage production expansion. Most aggressively, Czarnikow elevated its 2025/26 global surplus estimate to 8.7 MMT.

The International Sugar Organization forecasts a 1.625 MMT surplus in 2025/26 following a prior-year deficit, driven by increased production in India, Thailand, and Pakistan alongside a projected 3.2% global production increase. Global ending stocks are projected to fall modestly to 41.188 MMT, down 2.9% year-over-year—a minor decline that does little to offset the structural surplus.

A silver lining exists only on the distant horizon. Safras & Mercado projects that Brazil’s 2026/27 production will decline 3.91% to 41.8 MMT from the expected 43.5 MMT in 2025/26, with exports falling 11% year-over-year to 30 MMT. However, this moderation remains 2-3 seasons away and depends on producer response to profoundly weak pricing.

The near-term message is clear: barring unforeseen disruptions or sustained currency weakness, the sugar market faces an extended period of surplus conditions and downward price pressure. Recent rallies driven by technical factors offer only temporary relief against powerful fundamental headwinds.