Sugar Markets Gain Ground as Dollar Retreats Spark Short Covering Rally

Sugar futures posted significant gains on Tuesday, with March New York sugar closing up 0.37 cents (+2.59%) and March London ICE white sugar rallying 12.40 cents (+3.06%). The sharp recovery came as weakness in the U.S. dollar triggered a wave of short covering among traders. This rebound marks a technical bounce after sugar prices hit their lowest levels in months—NY sugar fell to a 2.5-month low while London sugar touched a 5-year low just the day prior.

The Dollar Effect and Short-Term Price Recovery

The immediate catalyst for Tuesday’s gains was the softer U.S. dollar (DXY), which prompted traders holding short positions to buy back contracts at lower prices. This mechanical short squeeze temporarily reversed the downward momentum that has dominated the sugar complex since late 2024. However, beneath this surface recovery lies a fundamental disconnect: while short-term technical factors have sparked a brief rally, longer-term structural headwinds remain firmly in place.

Global Oversupply Continues to Weigh on Sentiment

The persistent bearish backdrop centers on expectations of abundant global sugar supplies. Forecasters have painted a consistent picture of oversupply extending through 2026. The International Sugar Organization (ISO) projects a 1.625 million MT surplus for 2025-26, having tracked a prior 2.916 million MT deficit in 2024-25. ISO forecasts global sugar production will rise 3.2% year-over-year to 181.8 million MT in 2025-26, outpacing consumption growth.

Even more aggressive is Czarnikow, the sugar trading firm, which raised its 2025/26 global surplus estimate to 8.7 MMT—up 1.2 MMT from a September forecast. Other analysts like Green Pool Commodity Specialists expect a 2.74 MMT surplus for 2025/26, while StoneX projects 2.9 MMT. The U.S. Department of Agriculture, in its December 16 report, painted perhaps the most constructive view, projecting global 2025/26 production of 189.318 MMT against consumption of 177.921 MMT, leaving ending stocks at 41.188 MMT. Yet even this scenario reflects modest inventory buildup concerns.

Supply Surge Across Major Producing Nations

Brazil Leads Production Gains

Brazil, the world’s largest sugar producer, continues to expand output. Conab, the Brazilian government’s crop forecasting agency, estimates 2025/26 production at 45 MMT, up from a prior 44.5 MMT forecast. This production surge reflects increased sugar cane crushing, with the ratio of cane crushed for sugar rising to 50.82% in 2025/26 from 48.16% in 2024/25, as reported by Unica on January 21. The USDA’s Foreign Agricultural Service projects Brazil’s 2025/26 output will rise 2.3% year-over-year to a record 44.7 MMT.

However, a potential silver lining emerges for 2026/27. Consulting firm Safras & Mercado forecasts Brazil’s 2026/27 sugar production will decline 3.91% to 41.8 MMT from the anticipated 43.5 MMT in 2025/26. This production pullback would also pressure exports, which are expected to fall 11% year-over-year to 30 MMT in 2026/27—a dynamic that could eventually lend support to prices further out.

India Production and Export Dynamics

India, the world’s second-largest sugar producer, has emerged as a wild card reshaping global supply dynamics. The India Sugar Mill Association (ISMA) reported on January 19 that India’s 2025-26 sugar output from October 1 through January 15 reached 15.9 MMT, up 22% year-over-year. ISMA subsequently raised its full-season 2025/26 India sugar production estimate to 31 MMT, a gain of 18.8% year-over-year from an earlier forecast of 30 MMT. The USDA projects even higher production at 35.25 MMT for 2025/26, a 25% year-over-year gain driven by favorable monsoon rains and expanded sugar acreage.

Adding pressure to global prices, India’s government has signaled a willingness to allow expanded sugar exports. India’s food ministry announced in November that it would permit mills to export 1.5 MMT in the 2025/26 season, removing constraints on a domestic supply glut. ISMA also reported that India has cut its ethanol production estimate to 3.4 MMT from a July forecast of 5 MMT, freeing additional sugar for export. This shift represents a reversal from India’s 2022/23 export quota system, implemented when late rains had constrained supplies.

Thailand Maintains Expansion Course

Thailand, the world’s third-largest producer and second-largest exporter, also shows production growth. The Thai Sugar Millers Corp projected in October that 2025/26 output will increase 5% year-over-year to 10.5 MMT, while the USDA forecasts a more modest 2% gain to 10.25 MMT.

The Short-Term Rally Versus Long-Term Pressure

Tuesday’s price gains, driven by dollar weakness and technical short covering, provide temporary relief but do not alter the fundamental picture. The multitude of supply forecasts—ranging from ISO’s 1.625 MMT surplus to Czarnikow’s 8.7 MMT surplus—all point in the same direction: sugar markets face a lengthy period of oversupply. Global production is expected to outpace consumption growth by a meaningful margin, particularly as new supplies from Brazil, India, and Thailand come to market.

The technical bounce may attract some tactical traders seeking to capture gains in the short term, but traders and investors evaluating longer-term positioning must contend with the structural headwind of ample global supplies. Until production discipline emerges or consumption accelerates unexpectedly, the downside risks to prices likely outweigh upside gains for much of 2026 and beyond.