Concerns over El Niño weather patterns and short-covering by funds have driven sugar prices higher, while ample supply from Brazil may limit the upside. What will be the next catalyst for the sugar market?
According to reports, the global raw sugar market has seen a notable rebound recently, with weather worries, improved sentiment across agricultural commodities, and short-covering collectively pushing prices up. However, the underlying supply outlook has not fundamentally changed.
Weather Fears and Short-Covering Drive Rebound, but Fundamentals Remain Loose
Senior sugar analyst and founder of Covrig Analytics Research, Claudiu Covrig, noted that ICE raw sugar futures have rebounded after several weeks of weakness, with key support stemming from fears about the upcoming El Niño phenomenon. This climate pattern could disrupt sugarcane production in major tropical agricultural regions globally. Covrig emphasized that while the rally has improved market sentiment, analysts view it as being driven more by speculative positioning and weather-related risks rather than any significant tightening in global sugar supply.
The raw sugar price has found support from increased investor interest in the broader soft commodities sector. However, the raw sugar fundamental outlook remains loose. Brazil, as the world's largest sugar producer and exporter, continues to produce sugar in large quantities, while export demand is relatively sluggish. Market participants expect the global raw sugar market to remain in a surplus through the third quarter of 2026. Therefore, the recent price increase reflects more of an improvement in market sentiment rather than a major shift in supply-demand fundamentals.
Tight Trade Flows Keep White Sugar Premiums Firm
In contrast to the loose raw sugar fundamentals, the refined sugar market presents a different picture.
Covrig stated that deliverable white sugar remains relatively scarce, supporting higher white sugar premiums and healthy refining margins. Although Thai offers exerted some brief pressure on premiums earlier in the week, refined sugar continues to outperform raw sugar due to expectations for tighter trade flows from Q4 2026 through Q2 2027.
Market participants believe white sugar premiums could remain above $125 per tonne, reflecting tightness in refined sugar supply.
Middle East Tensions Disrupt Q3 Raw Sugar Imports
Covrig pointed out that renewed escalation of tensions in West Asia will lead to a decline in raw sugar import demand from Gulf Cooperation Council countries in the third quarter. Some raw sugar demand has been pulled forward in hopes of a normalization in the region, but the current situation is not expected to improve quickly, meaning some import demand has already been lost. Some countries may not receive their next raw sugar shipments until September.
Strong Growth in Brazilian Cane Crushing, Record Ethanol Production
The latest data from Brazil's Agriculture Ministry confirms that the country's sugarcane crush remains exceptionally high, although sugar production is still below some market expectations. The cumulative crush for the first half of June reached approximately 185.3 million tonnes, a significant increase from 163.8 million tonnes in the same period last season. Sugar production was 2.31 million tonnes, largely in line with market expectations, though slightly constrained by intermittent rainfall sporadically disrupting harvesting since mid-May. Meanwhile, ethanol production (including corn ethanol) reached 2.16 billion liters, up 21% year-on-year, marking the highest ethanol production so far in the 2026/27 season.
Market attention is now focused on the upcoming production report from Brazil's sugarcane industry association, which is expected to confirm production data and provide updated domestic ethanol sales figures. Traders are particularly watching to see if demand for hydrous ethanol has begun to recover, as retail fuel economics are currently at historically favorable levels following disappointing demand in April and May.
Indian Sugar Prices Surge 4,000 Rupees per Tonne, Boosting Mill Revenues
In the Indian domestic market, sugar prices have surged by 4,000 rupees per tonne over the past month, directly boosting mill revenues. S-grade sugar prices in Maharashtra have risen to 42,000 rupees per tonne from 38,000 rupees a month ago. This rise is driven by multiple factors including below-normal monsoon rains, the El Niño phenomenon, and tightening domestic supplies.
The industry estimates that if current price levels are maintained, sugar mills could earn an additional 110 billion rupees in revenue next season. Specifically for this month, the government allocated a monthly sales quota of 2.2 million tonnes for the domestic market in July 2026, compared to 2.25 million tonnes in June. Given the price increase of 4,000 rupees per tonne, the sale of this month's quota alone could bring mills an extra 10 billion rupees. Domestic sugar sales for August are projected to be between 2.3 and 2.4 million tonnes.
Hemant Shah, a director at JK India eAgriTech Ltd, stated that sugar prices could remain firm in the coming months as demand increases during the festive season. He also noted that the central government's imposition of a sugar export ban in May was based on ensuring adequate domestic supplies for the festive period and concerns over El Niño's impact on next season's sugar production. The export restrictions, combined with weather-related worries, have reinforced market expectations of tightening domestic sugar supply and demand, thereby supporting prices.
Back in June 2026 at a sugar, ethanol, and bioenergy conference in Mumbai, industry veterans and experts had already pointed out that prices could rise due to reduced sugar availability. Industry calculations suggest that if sugar prices stay near current levels throughout the season, the sugar industry could earn roughly 1.1 trillion rupees more than last year.
Although widespread rains in recent weeks have improved soil moisture, potentially alleviating stress on sugarcane fields from earlier prolonged heat and insufficient rainfall, sugar production is still expected to be below previous years' levels. This implies that domestic supply pressure will persist, continuing to support high sugar prices in the coming months.
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