T
he traders on the floors witnessed a rare event this week: the persistence of a week long rally. Prices for sugar extended its steep week long rally on Tuesday, with sugar in New York rising to a 10-month nearest-futures high and sugar in London reaching a 15-month high on fears of reduced global production.
Such is the sudden change in fortune for the product that had recently seen a plunge to a 4-year low on expectations of global abundance of the commodity that even big players are now scrapping their predictions and starting from scratch.
Domino effect started in Europe. The reason for the drop in production in Europe is drought and heat in Europe, causing the European Union and the UK's sugar production to fall by 14.98 million metric tonnes this year, marking the lowest production in 11 years, according to information from S&P Global Energy.
It is not a small decrease, but rather a complete collapse in production in a part of the world where supply has always been reliable, and it is taking away production capacity from a market that can barely cope with it.
The second and perhaps even more serious threat came from Brazil – the largest sugar producer in the world. Reduced sugar production in Brazil became bearish for the price because, according to the Unica report, Brazil Center-South June sugar production declined by 26.3% year-on-year to 3.903 million metric tonnes. This was a more than 25% decline in expected production.
The cause of this fall is related, quite surprisingly, to the war in the Middle East. Sugar trader Czarnikow had already reduced the global sugar balance forecast for 2026/27 from a 1.4 million metric tonne surplus to a 100,000 metric tonne deficit because of the change in Brazil sugar mills to ethanol due to the increased prices for crude oil in connection with the US-Iran conflict. The higher the prices of oil, the more profitable it becomes to manufacture biofuel, in this case, ethanol, than the raw sugar.
The Brazilian factories are producing ethanol instead of sugar, and the sugar market suffers from this shift in production.
India, the second-biggest producer, too, has seen its fortunes take a seesaw pattern between euphoria and frustration. According to India's Meteorological Department, India's aggregate monsoon rainfall fell by 12% compared with its long-term average up to August 10, an improvement of sorts from a massive 42% deficit witnessed on June 30, yet not enough to give solace to the market. India's Earth Science Ministry has taken the issue a step further, predicting this year's monsoon may well turn out to be the weakest in 11 years, a situation which could severely limit sugar cane production in the crucial June to September harvest season.
Ironically, it was only a few weeks ago when India helped pull prices lower. Sugar prices fell to levels last witnessed in 5.25 months on July 30, buoyed by higher Indian production prospects owing to favorable monsoon rains.
What has made this rally unique has been the swift pace at which the leading analytics firms have been making revisions to their global balance sheets in a bearish way for the supplies. At the moment, Covrig Analytics is forecasting a global deficit of 300,000 metric tonnes for 2026/27, having revised its June prediction for a 100,000-metric-tonne surplus.
Green Pool Commodity Specialists took the revisions a step further by upping its 2026/27 estimate for a global sugar deficit to 3.3 million metric tonnes, up from 1.76 million metric tonnes only a few weeks ago. Even StoneX increased its deficit estimate to 1.7 million metric tonnes from the previous figure of 550,000 tonnes.
The official agencies, which tend to be more conservative, are also now bearish about sugar supplies. According to the International Sugar Organization, global production in 2026/27 would fall 1.15% year-on-year to 180 million metric tonnes with a deficit of 262,000 metric tonnes.
The El Niño weather phenomenon that could affect India and Thailand was cited as the reason for this expectation. However, according to the projection of the USDA, global sugar production for 2026/27 would fall 6.5% year-on-year to 184.854 million metric tonnes, a big drop from the 186.056 million metric tonnes seen the year before.
To understand the magnitude of the turnaround in the situation, it is important to recall where sugar was placed just some time back. The prices of sugar fell to 4-year lows due to expectations of plentiful global supplies, with the May USDA report predicting a record high global harvest for 2025/26 at 189.318 million metric tons of sugar with a 41.188 million tonne surplus – a rise of 7.5% YoY. This was the story for almost all of the year – there was plenty of sugar; it was an excess, and no deficiency.
This entire story has now been turned around in just ten weeks' time, due to the drought in Europe, an ethanol switch in Brazil led by oil price increase, and an erratic monsoon season in India.
Sugar is not a niche product; it is an integral part of rising food costs across all kinds of consumer products, ranging from packaged snacks to beverages to staples. The persistent global shortage of this scale cannot remain limited to New York- or London-based futures trading alone but will inevitably manifest itself in rising grocery bills, particularly for countries dependent on imports.
However, given that the Brazilian decision on the ethanol switch is a consequence of rising oil prices due to the Middle Eastern geopolitical conflict, the impact of this situation is an unexpected one for sugar as well.
