Brazilian Real Surge Drives Sugar Futures Short Covering

Sugar Prices Rise on Stronger Brazilian Real and Short Covering

On Monday, the October NY world sugar contract #11 (SBV25) closed up +0.21 (+1.33%), while the October London ICE white sugar #5 (SWV25) closed up +6.20 (+1.28%). The prices of sugar settled sharply higher, reaching 1.5-week highs. This increase was largely driven by a strong performance in the Brazilian real against the US dollar. The real reached a 15-month high, which made it more expensive for Brazil's sugar producers to export their goods.

The stronger Brazilian real led to short covering in the sugar market. This means that traders who had bet on the price of sugar falling were buying back their positions, thus pushing prices higher. This trend is expected to continue as the real remains strong.

Fund Positions and Market Sentiment

A significant factor influencing the sugar market is the position of funds in the New York sugar futures. According to the latest Commitment of Traders (COT) report, funds increased their net-short positions in NY sugar futures by +32,849 to 182,608 in the week ended September 9. This marks the highest level in nearly six years. An excessive short position could lead to further gains if there is a short-covering rally.

Last Monday, NY sugar fell to a 4.25-year low, while London sugar dropped to a 3.5-week low. This decline was due to concerns over higher sugar production in Brazil. On August 29, Unica reported that Brazil’s Center-South sugar output in the first half of August rose by +16% year-over-year to 3,615 million tons (MT). Additionally, the percentage of sugarcane crushed for sugar by Brazil’s sugar mills increased to 55.00% from 49.15% the same time last year. However, cumulative 2025-26 Center-South sugar output through mid-August is down -4.7% year-over-year to 22.886 MMT.

Covrig Analytics recently noted that Brazil’s sugar mills are focusing more on sugar production than ethanol, crushing more cane for sugar. This trend is expected to continue as harvesting peaks, driven by drier cane crops that prompt mills to produce more sugar.

Global Supply Outlook and Price Pressure

Despite these developments, several factors are putting downward pressure on sugar prices. One of the main concerns is the potential for higher sugar exports from India. Last Thursday, the Indian Sugar and Bio-energy Manufacturers Association requested permission to export 2 million metric tons (MMT) of sugar in the 2025/26 season beginning in October. India is the world's second-largest sugar producer.

The International Sugar Organization (ISO) forecasted a global sugar deficit for the 2025/26 season, marking the sixth consecutive year of deficits. The ISO projects a global 2025/26 sugar deficit of -231,000 MT, an improvement from a -4.88 MMT shortfall in 2024/25. However, the ISO also predicts that global 2025/26 sugar production will rise by +3.3% year-over-year to 180.6 MMT, with consumption increasing by +0.3% to 180.8 MMT.

Production Estimates and Weather Impact

In August, Conab, Brazil’s government crop forecasting agency, cut its 2025/26 production estimate by 3.1% to 44.5 MMT from a previous estimate of 45.9 MMT. In July, Conab reported that 2024/25 Brazil sugar production fell by -3.4% year-over-year to 44.118 MMT, citing lower sugarcane yields due to drought and excessive heat.

Expectations of abundant sugar supplies are also weighing on prices. On June 30, commodities trader Czarnikow projected a 7.5 MMT global sugar surplus for the 2025/26 season, the largest surplus in eight years. On May 22, the USDA projected that global 2025/26 sugar production would increase by +4.7% year-over-year to a record 189.318 MMT, with global ending stocks at 41.188 MMT, up 7.5% year-over-year.

Outlook for India and Thailand

India's outlook for higher sugar production is bearish for prices. On June 2, the National Federation of Cooperative Sugar Factories projected that India's 2025/26 sugar production would climb +19% year-over-year to 34.9 MMT, citing larger planted cane acreage. This follows a -17.5% year-over-year decline in 2024/25 to a five-year low of 26.2 MMT.

Thailand’s outlook for higher sugar production is also bearish. On May 2, the Office of the Cane and Sugar Board reported that Thailand’s 2024/25 sugar production rose +14% year-over-year to 10.00 MMT. Thailand is the world's third-largest sugar producer and the second-largest exporter of sugar.

USDA Projections and Market Trends

The USDA, in its bi-annual report released on May 22, projected that global 2025/26 sugar production would climb +4.7% year-over-year to a record 189.318 MMT, with human sugar consumption increasing +1.4% to a record 177.921 MMT. The USDA also forecasted that 2025/26 global sugar ending stocks would climb +7.5% year-over-year to 41.188 MMT.

According to the USDA’s Foreign Agricultural Service (FAS), Brazil’s 2025/26 sugar production is expected to rise +2.3% year-over-year to a record 44.7 MMT. FAS predicted that India’s 2025/26 sugar production would rise +25% year-over-year to 35.3 MMT due to favorable monsoon rains and increased sugar acreage. FAS also predicted that Thailand’s 2025/26 sugar production will climb +2% year-over-year to 10.3 MMT.

Final Notes

As the market continues to monitor production trends, weather conditions, and export policies, the sugar market remains highly sensitive to changes in supply and demand. Investors and traders should stay informed about these developments to make well-informed decisions.