Global Sugar Oversupply Emerging as Dollar Strength Weighs on London Sugar and Beyond

Market Downturn Driven by Multiple Headwinds

Sugar futures across major exchanges have retreated amid a complex backdrop of commodity pressures. New York world sugar #11 March contracts (SBH26) pulled back 0.05 points or 0.33%, while London ICE white sugar #5 (SWH26) fell 1.20 points representing a 0.28% decline. The underlying trigger remains the appreciating US dollar, with the Dollar Index (DXY00) reaching four-week highs—a level that consistently dampens commodities pricing across the complex, including sugar.

However, the immediate downside has been tempered by anticipated index rebalancing flows. Citigroup estimates that the BCOM and S&P GSCI indices will direct approximately $1.2 billion into sugar futures this week as part of their annual rebalancing operations, providing a floor beneath current weakness.

Supply Surge from Major Producing Nations

The fundamental picture has shifted decisively toward oversupply. The International Sugar Organization (ISO) projected on November 17 that the global sugar market faces a surplus of 1.625 million MT for 2025-26, a sharp reversal from the 2.91 million MT deficit posted in 2024-25. The USDA’s December 16 report reinforces this bearish outlook, forecasting global sugar production to surge 4.6% year-over-year to a record 189.318 MMT, while consumption rises only 1.4% to 177.921 MMT.

India has emerged as the primary driver of oversupply. The India Sugar Mill Association (ISMA) reported that Indian sugar output from October 1 through December 31 in the 2025-26 season exploded 25% year-over-year to 11.90 MMT versus 9.54 MMT in the prior year. ISMA subsequently raised its full-season 2025/26 production estimate to 31 MMT, representing an 18.8% increase from the previous year. With ethanol usage now projected at just 3.4 MMT—down significantly from July’s 5 MMT forecast—India has capacity for elevated sugar exports. The USDA concurs, anticipating India’s 2025/26 production will jump 25% to 35.25 MMT due to favorable monsoon conditions and expanded cultivated acreage.

Brazil, traditionally the dominant producer, continues expanding output despite earlier concerns. Conab raised Brazil’s 2025/26 production estimate to 45 MMT on November 4, with Unica reporting the Center-South region had already produced 39.904 MMT through November—a 1.1% year-over-year gain. The USDA projects Brazil’s full-year output will climb 2.3% to a record 44.7 MMT. Critically, the proportion of sugarcane directed toward sugar production rose to 51.12% in the current season versus 48.34% previously, amplifying the supply expansion.

Thailand rounds out the oversupply picture as the world’s third-largest producer and second-largest exporter. The Thai Sugar Millers Corp forecasts the 2025/26 crop will grow 5% year-over-year to 10.5 MMT, with the USDA estimating a 2% increase to 10.25 MMT.

Export Capacity and Policy Tailwinds

India’s government has signaled willingness to expand exports to manage domestic surplus. India’s food secretary recently suggested authorization of additional sugar shipments, with the food ministry already permitting mills to export 1.5 MMT during the 2025/26 season. This represents a significant reversal from the export quota system implemented in 2022/23 when late-season rains squeezed domestic availability.

Sugar trader Czarnikow updated its forecast for the 2025/26 global surplus to 8.7 MMT, elevated from the 7.5 MMT estimate provided in September—underscoring the accelerating pace of supply accumulation.

Market Dynamics Looking Ahead

While London sugar and New York futures face structural headwinds from mounting global inventories and dollar appreciation, the market remains susceptible to short-term rallies. In early trading this month, New York sugar reached two-and-a-half-month highs fueled by earlier supply concerns from Brazil. However, these gains proved fleeting as Indian production surges captured headlines, forcing prices lower to three-week troughs by week’s end.

With global ending stocks projected to contract only 2.9% to 41.188 MMT despite record production volumes, the sugar complex faces a prolonged period of price pressure unless demand accelerates materially or supply disruptions emerge from major producing regions.