Commodity Index Rebalancing Drives Sugar Rally Higher

Index-Driven Buying Propels Market Forward

Sugar futures have gained significant momentum this week, with New York world sugar #11 (SBH26) climbing 0.08 points (0.53%) and London ICE white sugar #5 (SWH26) rising 2.00 points (0.47%). The bullish run reflects anticipated index-driven purchases as major commodity indexes undertake their annual rebalancing cycles. Citigroup analysts project that the two dominant commodity indexes—BCOM and S&P GSCI—will channel approximately $1.2 billion into sugar futures throughout the coming week, providing substantial support for the upward trend.

India’s Surge in Sugar Production in India Reshapes Export Dynamics

Production Volume Climbs Sharply

The landscape has shifted markedly with India’s output expansion. The India Sugar Mill Association reported a 25% year-over-year surge in sugar production from October 1 to December 31, reaching 11.90 MMT compared to 9.54 MMT in the prior year. This momentum carries through to the full season, with ISMA revising its 2025/26 production estimate upward to 31 MMT, an 18.8% increase from the previous year.

Export Policy Changes Weigh on Prices

The adjustment in India’s ethanol allocation strategy further frees up supply for exports. ISMA reduced its forecast for sugar destined for ethanol production to 3.4 MMT, down from the originally planned 5 MMT. This shift enables India, the world’s second-largest sugar producer, to expand its export availability significantly.

Government approval for additional shipments came late last year when India’s food ministry authorized mills to export 1.5 MMT of sugar during the 2025/26 season—the first sizable export allowance since India reimposed quotas in 2022/23 following production challenges. Market participants recognize that higher sugar production in India could trigger additional export permissions, creating downward price pressure as global supply tightens.

Global Production Projections Signal Expansion Ahead

Brazil’s Record Output and Currency Effects

Brazil’s anticipated production growth continues to shape market sentiment. Conab raised its 2025/26 sugar output forecast to 45 MMT in November, up from 44.5 MMT. Meanwhile, the Brazilian real’s recent appreciation to one-month highs against the US dollar has complicated the picture—a stronger currency discourages exporters from selling abroad, potentially supporting prices despite rising production volumes. Conversely, earlier forecasts predicted reduced sugar output for the 2026/27 season at 41.8 MMT (down 3.91% from the projected 43.5 MMT in 2025/26), which briefly supported prices, though this longer-term outlook carries less immediate weight.

Thailand and Emerging Supply Sources

Thailand, the world’s third-largest producer and second-largest exporter, is positioned for a 5% year-over-year increase to 10.5 MMT in the 2025/26 crop, according to the Thai Sugar Millers Corp. This expansion joins rising output expectations from Pakistan and other suppliers, intensifying competition in the global market.

Consensus on Market Surplus Conditions

International forecasters increasingly agree that abundant supply will characterize the market. The International Sugar Organization predicted on November 17 that global sugar will swing to a surplus of 1.625 million MT in 2025/26, reversing the 2.916 million MT deficit from 2024/25. This represents a shift toward elevated inventory levels as global production climbs 3.2% year-over-year to 181.8 million MT.

Sugar trader Czarnikow painted an even more expansive picture, boosting its global surplus forecast for 2025/26 to 8.7 MMT, up from 7.5 MMT estimated in September.

USDA Forecasts Record Harvest and Consumption

The U.S. Department of Agriculture’s December 16 bi-annual report projects global sugar production will reach an unprecedented 189.318 MMT in 2025/26, representing a 4.6% year-over-year increase. Human consumption is also expected to achieve a historic high at 177.921 MMT, up 1.4%, though this demand growth lags behind supply expansion.

The USDA’s outlook specifically highlights India’s remarkable trajectory, forecasting production will jump 25% to 35.25 MMT, supported by favorable weather patterns and expanded acreage. Brazil is projected to add 2.3% to reach 44.7 MMT, while Thailand is expected to reach 10.25 MMT, a 2% increase. These gains collectively underscore the structural oversupply conditions developing across the global market, which will likely constrain price appreciation despite near-term index rebalancing support.