Sugar prices rallied sharply on Monday, with July New York world sugar futures climbing 1.5% and London white sugar futures gaining 1.23%, as traders priced in growing concerns over tighter global supplies. The move was driven by a confluence of bearish supply signals from Brazil, the world’s largest sugar producer, and mounting weather risks in key Asian growing regions.
Citigroup Cuts Brazil Production Outlook
Citigroup now projects Brazil’s 2026/27 sugar production at 39.50 million metric tons (MMT), well below the official estimate of 43.95 MMT from Brazil’s crop supply agency Conab. The bank cited a structural shift by Brazilian mills, which are allocating more sugarcane to ethanol production as soaring gasoline prices make the biofuel more profitable. This diversion reduces the volume of cane available for sugar crushing, tightening global supply expectations.
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The data is consistent with early-season figures from Unica, which reported that Brazil’s Center-South sugar production in the first half of April fell 11.9% year-on-year to just 647,000 metric tons. Mills directed only 32.9% of cane to sugar production, down sharply from 44.7% in the same period last year.
El Niño Risk Looms Over India and Thailand
Beyond Brazil, Citigroup warned that a potentially strong El Niño weather pattern this year could have “a significant impact” on sugar production in India and Thailand over the next 6 to 12 months. Both countries are among the world’s top sugar producers and exporters. El Niño typically brings drier conditions to parts of Asia, which could reduce cane yields and sugar recovery rates.
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India, the world’s second-largest sugar producer, is particularly sensitive to monsoon variability. The USDA’s Foreign Agricultural Service had previously forecast India’s 2025/26 production at 35.25 MMT, up 25% year-on-year, but those estimates may prove optimistic if rainfall patterns deviate from normal.
Global Surplus Estimates Shrink Rapidly
The tightening supply picture is reflected in rapidly shrinking global surplus estimates. Covrig Analytics cut its 2026/27 global sugar surplus forecast to just 800,000 metric tons from 1.4 million metric tons previously. Sugar trader Czarnikow made an even more dramatic revision, slashing its surplus estimate to 1.1 million metric tons from 3.4 million metric tons in February.
These downward revisions follow a period of relative global abundance. The International Sugar Organization (ISO) reported a 1.22 million metric ton surplus in 2025/26, recovering from a deficit of 3.46 million metric tons the prior year. However, the speed of the downgrades suggests the market is pivoting toward a tighter balance.
Geopolitical Disruptions Add to Supply Concerns
The ongoing closure of the Strait of Hormuz has added a geopolitical dimension to sugar supply risks. According to Covrig Analytics, the disruption has curbed approximately 6% of the world’s sugar trade by constraining refined sugar output, as the strait is a key shipping route for crude oil and refined products used in sugar processing and transport.
India’s Export Policy in Focus
India’s sugar export policy remains a critical variable. In February, the Indian government approved an additional 500,000 metric tons of sugar for export for the 2025/26 season, on top of 1.5 million metric tons approved in November. India’s Food Secretary has stated that the government has no plans to ban sugar exports this year, easing earlier fears that the country might restrict shipments amid rising ethanol demand.
The Indian Sugar and Bio-energy Manufacturers Association (ISMA) has projected India’s 2025/26 production at 29.3 million metric tons, up 12% year-on-year, though below an earlier projection of 30.95 million metric tons. Notably, ISMA cut its estimate for sugar diverted to ethanol production to 3.4 million metric tons from 5 million metric tons, potentially freeing up more sugar for export.
Conclusion
The rally in sugar prices reflects a market reassessing supply risks from multiple directions: lower Brazilian output due to ethanol competition, potential El Niño impacts in Asia, and geopolitical disruptions to trade routes. While global production is still expected to grow year-on-year, the pace of downward revisions to surplus estimates suggests the margin for error is narrowing. Traders will be watching weather patterns in Brazil and India closely in the coming months.
FAQs
Q1: Why are sugar prices rising?
Sugar prices are climbing due to lower production forecasts from Brazil, where mills are diverting more sugarcane to ethanol production, and growing concerns that El Niño could reduce yields in India and Thailand.
Q2: How much sugar does Brazil produce?
Brazil is the world’s largest sugar producer. Conab estimates 2026/27 production at 43.95 million metric tons, but Citigroup projects a lower figure of 39.50 million metric tons due to increased ethanol allocation.
Q3: Will El Niño affect sugar production?
Yes. A strong El Niño could bring drier conditions to India and Thailand, potentially reducing cane yields and sugar recovery rates over the next 6 to 12 months, according to Citigroup.
