Global Sugar Market Faces Headwinds as Production Surge Disrupts Price Equilibrium

Sugar futures across major exchanges tumbled today following the International Sugar Organization’s projection of a significant supply expansion. March NY sugar futures dropped 1.07%, while London ICE white sugar fell 1.81%, extending recent bearish momentum driven by what economists frame as a classic producer surplus scenario in commodity markets.

The Supply Shift: From Deficit to Surplus

The ISO’s forecast marks a dramatic reversal in market dynamics. The organization now projects a 1.625 million MT surplus for the 2025-26 season, a stark contrast to the 2.916 million MT deficit experienced in 2024-25. This 180-degree turn reflects what commodity analysts describe as a textbook example of how production expansions can collapse market price structures—a direct application of the producer surplus formula, where increased output at existing price levels leaves sellers with fewer profit margins per unit.

In August, the ISO had predicted only a modest 231,000 MT deficit, making this revision one of the most significant recalibrations of the marketing year outlook.

Brazil Leads the Production Wave

Brazil, accounting for nearly one-third of global output, is driving much of the expansion. Conab raised its 2025/26 production forecast to 45 MMT from 44.5 MMT, with Center-South region output rising 1.6% year-over-year to 38.085 MMT through October. The region’s crushing mills are allocating 46.02% of sugarcane toward sugar (up from 45.91%), signaling aggressive production prioritization over ethanol.

Private traders have grown even more bearish. Czarnikow boosted its 2025/26 global surplus estimate to 8.7 MMT last month, up 1.2 MMT from September forecasts, reflecting expectations of even steeper supply pressures than official projections suggest.

India’s Export Expansion and Monsoon Tailwinds

India, the world’s second-largest producer, compounds the supply picture. The India Sugar Mill Association raised its 2025/26 output forecast to 31 MMT (up 18.8% year-over-year), while simultaneously cutting ethanol production estimates from 5 MMT to 3.4 MMT—a shift that effectively frees up supply for export markets.

The backdrop is favorable: cumulative monsoon rainfall through late September hit 937.2 mm, marking 8% above normal and the strongest monsoon in five years. The National Federation of Cooperative Sugar Factories projects an even more bullish 34.9 MMT output (+19% y/y), though market consensus clusters around the lower 31 MMT ISMA estimate.

However, India’s food ministry announced stricter export quotas, limiting mills to 1.5 MMT for 2025/26 versus earlier 2 MMT expectations—a moderation that partially offsets production gains but signals government concern about domestic supply tightness.

Thailand Steady, Global Production at Records

Thailand, the world’s third-largest producer and second-largest exporter, is projected to increase output 5% year-over-year to 10.5 MMT, adding moderate additional supply without dramatic expansion.

The USDA’s latest projections are even more expansive, forecasting global production climbing 4.7% to a record 189.318 MMT against consumption rising only 1.4% to 177.921 MMT—a demand-supply gap that explains current price weakness through basic market equilibrium principles.

Market Implications: The Producer Surplus Squeeze

From an economics perspective, this situation exemplifies negative producer surplus dynamics. When global supply expands faster than demand, sellers face downward price pressure despite maintaining or growing output volume. Yesterday’s lows—London sugar hitting 4.75-year lows and NY sugar slumping to 5-year lows—reflect markets pricing in sustained surplus conditions through 2026.

The convergence of Indian monsoon abundance, Brazilian production records, and global inventory buildup (USDA forecasts stocks rising 7.5% to 41.188 MMT) creates structural headwinds for price recovery in the near term.