Global Sugar Market Tightens as Fund Positioning Shifts Amid Production Surge

Sugar futures closed significantly higher on Friday, with NY world sugar #11 advancing +0.39 cents (+2.68%) and London ICE white sugar #5 climbing +10.20 points (+2.44%). The rally was fueled by fund short covering activity before the three-day US holiday weekend, as markets prepared for closure on Monday for Martin Luther King Day.

Funds Build Record Long Positions

The latest Commitment of Traders data reveals substantial shifts in market positioning. Funds added 4,544 net long contracts to white sugar futures, pushing their total positions to a record 48,203—the highest level since 2011. This excessively concentrated bullish stance could leave the market vulnerable should sentiment deteriorate.

Production Expansion Across Key Growing Regions

The fundamental picture tells a different story. Global sugar production is expanding dramatically across multiple continents, creating headwinds for prices:

India’s Output Surge: India’s National Federation of Cooperative Sugar Factories reported that 2025-26 production climbed to 15.9 MMT from October 1 through mid-January, representing a +21% year-over-year increase. The India Sugar Mill Association previously raised its full-season estimate to 31 MMT, up +18.8% y/y. This positions India as the world’s second-largest producer, with potentially higher export volumes if domestic quotas are relaxed.

Brazil’s Dual Recovery: Brazil’s Center-South region generated 40.158 MMT of sugar through mid-December, up +0.9% y/y. More significantly, crushers shifted priorities toward sugar production, with the sugar-to-ethanol ratio rising to 50.91% in 2025/26 from 48.19% previously. Conab forecasts total 2025-26 Brazilian output could reach 45 MMT, while Safras & Mercado projects the commodity will stabilize at 41.8 MMT in 2026/27.

Thailand’s Steady Growth: As the world’s third-largest producer and second-largest exporter, Thailand’s 2025-26 crop is projected to expand +5% year-over-year to 10.5 MMT, adding further supply pressure.

Global Surplus Dominates the Outlook

Multiple forecasting agencies are converging on a surplus narrative. Covrig Analytics estimates a 4.7 MMT global surplus for 2025/26—up from 4.1 MMT in October—though it anticipates contraction to 1.4 MMT in 2026/27 as weak prices discourage growers. The International Sugar Organization projects a 1.625 MMT surplus for 2025-26 following a 2.916 MMT deficit the prior year, driven by increased output from India, Thailand, and Pakistan.

The USDA painted an even more bearish scenario in its December report, forecasting global 2025/26 production will surge +4.6% y/y to a record 189.318 MMT against consumption growth of just +1.4% to 177.921 MMT. This production-consumption imbalance suggests sustained downside price risk, though related products like sugar paste derivatives may see varied demand depending on industrial applications.

Near-Term Support Factors

Despite the surplus environment, India’s food ministry announced it may permit additional sugar exports in 2025/26, and the government established a 1.5 MMT export quota to clear domestic inventory buildup. Simultaneously, Safras & Mercado projects Brazil’s 2026/27 exports could decline -11% year-over-year to 30 MMT, potentially providing some floor to prices in the medium term.

Market Positioning Risk

Thursday’s session saw both NY and London contracts reach monthly and two-month lows respectively before Friday’s short-covering bounce. With funds holding record-long exposure, the market faces asymmetric downside risk should production data continue to disappoint forecasts or demand-side improvements fail to materialize.