Sugar Prices Rally Amid Crude Oil Surge and Supply Outlook

Sugar markets see a bounce as crude oil prices rise, prompting concerns about potential supply shifts. Increased production forecasts from major players hint at a challenging pricing environment ahead.

Date: 09-05-2025

AI Rating: 5

Market Outlook and Key Factors Affecting Sugar Prices

The recent report highlights various factors influencing sugar prices, primarily driven by fluctuating crude oil prices and the outlook for sugar production in major markets. Crude oil's +3% rally sparks concerns as sugar mills may shift to produce ethanol due to higher profit margins in ethanol production, potentially decreasing sugar supplies.

Brazil's sugar production forecast presents conflicting signals. While Unica reported a +1.3% increase in Brazil Center-South sugar production, rising forecasts by Conab indicate an expected increase of +4% for the 2025/26 season. In contrast, predictions of a global sugar surplus from the USDA's FAS about India’s significant rise in sugar production by +26% y/y further add bearish sentiment towards sugar prices.

India's governmental adjustments in its sugar exports—allowing another 1 MMT this season—could provide a short-term boost in supply but highlight the downside potential if production forecasts are overly optimistic. Similarly, Thailand's projected +14% rise in sugar production also leans bearish for market prices.

Although there are signs of lower production in Brazil due to drought and excessive heat impacting yields, the overarching trend from the reports suggests an increase in sugar supply globally, pressuring prices. For instance, the International Sugar Organization raised its forecast of the global sugar deficit, indicating a tightening market compared to prior years.

Investor attention is warranted on profit margins across the sector. If sugar producers shift to ethanol, gross profit margins from sugar sales may decline, subsequently affecting net incomes and EPS. Furthermore, potential increases in operational costs due to environmental factors could impair free cash flow (FCF) in this volatile market. Overall, investors should remain cautious as the expectations for prices may not align with the supply outlook.

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