Global Sugar Surges on Fund Covering, But Production Outlook Threatens Rally

Sugar markets experienced a sharp rally today as funds rushed to cover short positions ahead of year-end holidays and the thinner trading that comes with them. March contracts in New York and London both jumped approximately 2.2%, but beneath this brief upward move lies a much larger bearish narrative taking shape in the global market.

The Short-Term Catalyst: Holiday Positioning

The immediate driver of today’s gains centers on technical fund activity. With Christmas and New Year holidays approaching, traders are unwinding short bets in anticipation of reduced liquidity and trading volumes. March NY world sugar contracts (SBH26) gained 0.32 points (+2.21%), while March London ICE white sugar contracts (SWH26) climbed 9.00 points (+2.16%). This is classic year-end behavior in commodity markets—more about calendar mechanics than fundamental strength.

The Fundamental Pressure: Record Global Supply on the Horizon

However, the structural backdrop tells a far more troubling story for bulls. The International Sugar Organization (ISO) in November forecasted a massive 1.625 million MT surplus for the 2025-26 marketing year, a dramatic reversal from the 2.916 million MT deficit that characterized 2024-25. This swing is being driven by projected production gains across the world’s top producers.

India’s Supply Explosion

India, the world’s second-largest producer, is set to dramatically increase output. Production data from October through December 15 already showed a +28% year-over-year jump to 7.83 MMT. The India Sugar Mill Association raised its full-year estimate to 31 MMT, and some analysts project it could climb to 34.9 MMT—a +19% year-over-year surge. This rebound follows a -17.5% decline in 2024/25, when output fell to a 5-year low of 26.1 MMT.

Compounding the supply pressure, India’s government is permitting additional sugar exports to alleviate domestic gluts. After allowing 1.5 MMT in exports for 2025/26, officials signaled more may be approved. The India Sugar Mill Association also cut its ethanol-use forecast to 3.4 MMT from 5 MMT, freeing up even more supply for export markets.

Brazil’s Record Output

Brazil’s 2025/26 harvest is also shaping up to be record-breaking. Conab raised its forecast to 45 MMT from 44.5 MMT, while the USDA’s Foreign Agricultural Service projects 44.7 MMT. Through November, cumulative Center-South output reached 39.904 MMT, up +1.1% year-over-year, with cane crushing allocated to sugar at 51.12%—up from 48.34% the prior season.

Thailand’s Contribution

Thailand, the world’s third-largest producer and second-largest exporter, is expected to increase 2025/26 output by +5% year-over-year to 10.5 MMT.

The Supply-Demand Picture

The USDA’s latest projections underscore the growing imbalance. Global 2025/26 sugar production is forecast to climb +4.6% year-over-year to a record 189.318 MMT. While human consumption is expected to rise +1.4% to a record 177.921 MMT, global ending stocks will still decline -2.9% to 41.188 MMT. This suggests the market is absorbing the massive production increase, but only barely.

Independent sugar trader Czarnikow boosted its global 2025/26 surplus estimate to 8.7 MMT, up 1.2 MMT from its September forecast—a sign that production estimates continue to trend higher.

What’s Next for Prices

Today’s short-covering rally may provide temporary relief, but the weight of global supply fundamentals remains firmly negative. Unless demand accelerates beyond current expectations or production stumbles, sugar prices face considerable headwinds through the 2025/26 season. The year-end rally should be treated as a selling opportunity for those positioned bearishly on the commodity.