Global Sugar Market at Crossroads: India's Ethanol Push vs Oil Collapse

Market snapshot: NY sugar (SBH26) +0.14%, London white sugar (SWH26) +0.35% today, but momentum fizzles fast.

The Rally That Wasn’t

Sugar caught a 3.5-week high yesterday after India’s food ministry hinted at raising ethanol prices—a seemingly bullish move. The logic: higher ethanol rates make it more attractive for Indian mills to crush sugarcane into fuel rather than sugar, cutting sugar supplies.

But here’s the plot twist: WTI crude oil tanked over 2% today, dragging ethanol prices down with it. When oil gets cheap, ethanol becomes less profitable, so mills flip back to crushing for sugar instead. Result? Supplies flood back to market, prices give up most gains.

The Real Bearish Headwind

The structural problem is massive supply growth. Three numbers tell the story:

• Brazil (world’s largest): Production forecast hits 45 MMT for 2025/26, up +0.5 MMT. Center-South output already up +1.6% y/y through October.
• India (second largest): ISMA just raised 2025/26 forecast to 31 MMT from 30 MMT, marking +18.8% y/y surge. Monsoon rainfall 8% above normal—the strongest in 5 years.
• Thailand (third largest): Expected to rise +5% y/y to 10.5 MMT.

Global picture: USDA projects 2025/26 global output at record 189.3 MMT (+4.7% y/y), while consumption only grows +1.4% y/y to 177.9 MMT. That’s a 11.4 MMT surplus building up.

Supply Glut Eating into Prices

International Sugar Organization flipped bearish: now forecasting 1.625 MMT surplus in 2025-26 (vs. 2.916 MMT deficit in 2024-25). Back in August, they expected just a 231k MT deficit. That’s a 1.4 MMT swing in just months.

Even more concerning—India’s export quota getting pinched. Food ministry capped 2025/26 exports at 1.5 MMT, down from earlier 2 MMT estimates. But with production ramping up 19% and monsoons pumping water into fields, India will fight to export anyway, flooding global markets.

The Kicker

Sugar hit 4.75-year lows in London last Thursday and 5-year lows in NY in early November. Czarnikow now sees global 2025/26 surplus ballooning to 8.7 MMT (up from 7.5 MMT estimate three months ago). Ending stocks projected to climb +7.5% y/y.

Bottom line: Short-term policy noise (ethanol prices, export quotas) can’t overcome the fundamental reality—a record sugar harvest is coming, and the world doesn’t need it all.