Brazil's Shrinking Sugar Crop Provides Price Support Amid Global Supply Shifts

2026-01-04 16:05:11

Sugar markets displayed mixed signals today, with March NY world sugar #11 (SBH26) climbing +0.09 (+0.59%) and March London ICE white sugar #5 (SWH26) retreating -1.20 (-0.28%). The benchmark NY contract is testing its highest level in 2.25 months, underpinned by concerns over declining output from the world’s largest producer.

The Brazil Production Concern: A Key Price Driver

Last week’s announcement from consulting firm Safras & Mercado reignited bullish sentiment in sugar markets. The firm projects Brazil’s sugar production for 2026/27 will contract by -3.91% year-over-year, dropping to 41.8 million metric tons (MMT) from 43.5 MMT anticipated for the current 2025/26 season. Even more significant, Brazil’s export projections face a steeper decline, with shipments forecast to fall -11% to 30 MMT in 2026/27.

This outlook carries substantial weight given Brazil’s dominance in global sugar supply. For context, Brazil’s current 2025/26 season has already demonstrated resilience, with Conab’s November estimate showing production at 45 MMT—revised upward from 44.5 MMT. Unica reported through November that Center-South region output rose +1.1% y/y to 39.904 MMT, while the ratio of cane designated for sugar processing expanded to 51.12% from 48.34% in the prior year.

Headwinds from Indian Export Expansion and Rising Global Supply

Despite the Brazilian production decline looming on the horizon, near-term price pressures stem from India’s export surge. India’s food secretary recently indicated that the government may permit additional sugar exports beyond the existing 1.5 MMT quota approved for the 2025/26 season, aiming to alleviate domestic oversupply conditions.

This potential export boost follows a robust production recovery in India. The India Sugar Mill Association (ISMA) raised its 2025/26 production forecast to 31 MMT (up +18.8% y/y) and subsequently reported that cumulative output from October 1 through December 15 jumped +28% y/y to 7.83 MMT. The ISMA simultaneously reduced its estimate for ethanol production to 3.4 MMT from 5 MMT, further freeing up sugar supplies for export markets.

Broader Global Supply Expansion Under Way

Beyond India, the International Sugar Organization (ISO) forecasted a 1.625 million MT surplus in 2025-26, reversing the previous year’s 2.916 million MT deficit. ISO projects global sugar production will surge +3.2% y/y to 181.8 MMT, driven not only by India but also by increased output in Thailand and Pakistan.

Sugar trader Czarnikow painted an even more bearish picture, elevating its global 2025/26 surplus estimate to 8.7 MMT in November, up +1.2 MMT from September projections.

Thailand, the world’s third-largest producer and second-largest exporter, contributes additional supply pressure. The Thai Sugar Millers Corp projected a +5% y/y increase in Thailand’s 2025/26 crop to 10.5 MMT.

USDA’s Comprehensive Outlook: Record Production, Rising Stocks Pressure

The USDA’s December 16 report provided the most expansive view yet. The agency projected global 2025/26 sugar production would climb +4.6% y/y to a record 189.318 MMT, while global human consumption would increase more modestly at +1.4% y/y to 177.921 MMT. Notably, ending stocks are expected to fall by -2.9% y/y to 41.188 MMT—a modest decline despite production gains.

The USDA’s Foreign Agricultural Service (FAS) forecasted Brazil’s 2025/26 production at a record 44.7 MMT (+2.3% y/y), India’s at 35.25 MMT (+25% y/y reflecting monsoon benefits and expanded acreage), and Thailand’s at 10.25 MMT (+2% y/y).

Where Sugar Prices Go From Here

Today’s mixed price action captures the fundamental tension between near-term oversupply and medium-term production constraints. NY sugar’s ability to maintain levels near 2.25-month highs reflects market conviction that Brazil’s projected production decline will eventually rebalance global supply. However, the near-term flood of Indian exports and record global output forecasts continue to weigh on prices, particularly London’s white sugar contract.

Traders appear to be pricing in a complex transition: from 2025-26’s surplus environment toward a tighter 2026-27 market as Brazilian supplies diminish. This structural shift may provide a floor for prices, even as current supply-driven headwinds limit upside potential.

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