Sugar Contracts Firm as Crude Oil Jump Revives Ethanol Substitution Concerns

In early October trading, New York world sugar No. 11 futures (SBV26) advanced 0.07 cents, or 0.46%, while August London ICE white sugar No. 5 (SWQ26) gained 5.10 dollars, or 1.07%.

Sugar prices are on the rise, with New York futures reaching a 1.75-month peak. The roughly 7% jump in WTI crude oil (CLQ26) is providing support, as higher crude strengthens ethanol values and may encourage mills globally to allocate more cane toward ethanol rather than sugar, tightening sugar availability.

Over the past two weeks, sugar has rallied strongly: New York contracts marked a 1.75-month high and London futures hit a 10-month peak on Tuesday. The advance reflects worries that deficient monsoon rainfall in India—the world’s second-largest sugarcane producer—will cut yields and shrink the harvest. India’s Meteorological Department noted cumulative monsoon rains were 15% below average as of July 8, and the Earth Science Ministry cautioned this could be the weakest monsoon in 11 years, with the season spanning June to September.

Supporting bullish sentiment, Unica said on June 22 that Brazil’s Center-South sugar output for 2026/27 through May totaled 6.838 million metric tons (MMT), down 2.0% year-on-year, as mills prioritized ethanol. The share of cane directed to sugar fell to 41.42% from 50.09%, while ethanol crushing rose to 58.38% from 49.91%. Additionally, Czarnikow revised its global 2026/27 balance on June 11 from a 1.4 MMT surplus to a 100,000 MT deficit, citing Brazilian mills’ shift to ethanol amid crude’s rise.

Fears that El Niño-driven dryness may hamper output add further upward pressure. Japan’s Meteorological Agency confirmed the pattern’s formation on June 17. Reduced rains in top producers Brazil, India, and Thailand are anticipated. India’s weather office last Friday trimmed its monsoon rainfall forecast to 90% of the long-term mean from 92% in April. NOAA puts the odds of a record “Super El Niño” at 67%.

Brazil’s Conab, in an April 28 debut seasonal report, projected 2026/27 sugar production at 43.952 MMT (‑0.5%) and ethanol at 29.259 million liters (+7.2%). The USDA on April 21 estimated Brazil’s sugar output at 42.5 MMT, down 3%, reflecting cane diversion to ethanol.

ISMA on April 7 cut its 2025/26 India sugar production view to 32 MMT from 32.4 MMT and sees exports at 800,000 MT. Export quotas instituted in 2022/23 after rain-hit output constrained supplies remain in force. Conversely, the USDA on April 30 projected a 2.5 MMT surplus for India in 2026/27, the first in two years.

ISO on May 18 predicted a record 2025/26 world crop and lifted its surplus view. It sees output at 182 MMT (+3.5%) and surplus at 2.2 MMT versus 1.22 MMT in February, reversing a 3.46 MMT deficit in 2024/25.

For 2026/27, ISO expects production to slip 1.15% to 180 MMT and a deficit of 262,000 MT due to El Niño effects in India and Thailand. StoneX on May 20 anticipated a 550,000 MT shortfall, and Covrig Analytics reduced its surplus call to 100,000 MT from 380,000 MT.

The USDA’s December 16 bi-annual report foresees 2025/26 world production up 4.6% to a record 189.318 MMT and consumption up 1.4% to 177.921 MMT, with ending stocks down 2.9% to 41.188 MMT. Its FAS expects Brazil to produce a record 44.7 MMT (+2.3%), India 35.25 MMT (+25%) on good rains and area, and Thailand 10.25 MMT (+2%).

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