Excess supply limits the rise in sugar prices

Sugar prices remained relatively stable throughout the week ending August 22, after retreating from two-month highs the previous week. The initial boost stemmed from signs of strengthening demand—such as tenders in Pakistan, increased Chinese imports reported by customs, and speculation about the use of sugarcane in Coca-Cola production in the U.S. However, the sweetener lost momentum as no significant changes in market fundamentals materialized.

"While fund activity has contributed to recent price support through profit-taking, overall market sentiment remains more bearish compared to previous seasons. Northern Hemisphere production for 25/26 should generally deliver strong results," notes Lívea Coda, Market Intelligence Coordinator at Hedgepoint Global Markets.

"Last week, some may have interpreted the release of productivity data by the CTC for the Center-South (CS) region of Brazil as bullish, as it remained below previous harvests. However, we believe the opposite, as the data shows signs that sugarcane volumes may exceed average market expectations. Our July estimate for TCH was 80,2 t/ha, well in line with the 81,03 t/ha reported by UNICA. Given this similarity, we maintained our forecast of 605 Mt of sugarcane for the 25/26 harvest, based on a year-to-date productivity of 75,9 t/ha in the region," he says.

For the analyst, it's important to highlight that, although the current result is 6% below the same period last year, TCH peaks in July are historically unusual – recently observed only in the 2023/24, 2022/23, and 2012/13 harvests. "The last two harvests had a higher percentage of crushing occurring after July. The 2022/23 and 2012/13 harvests were important references in our previous report (link), as they were selected to help estimate our TCH curve due to their VHI trends, which are very similar to those observed so far in the 2025/26 season," she states.

In this context, sugar availability in Brazil is expected to remain strong, mainly due to high sugar mix levels. UNICA's latest report recorded another all-time high, with a 54% mix during the second half of July. Despite being accompanied by a lower ATR, the 3,6 Mt sugar production during the fortnight helped reduce the production deficit, from 9,2% to 7,7% compared to the 24/25 harvest between the last two reports released by UNICA.

"Additional pressure on prices comes from increased availability in the Northern Hemisphere, as mentioned previously, particularly from countries like India, where export volumes could increase substantially depending on government decisions—note that export quotas of 2 Mt have already been requested. This reinforces the idea that prices could remain at current levels for some time, receiving support from the demand side, especially from China," he says.

China is expected to import more sugar than previously forecast, despite strong domestic production and a positive outlook for 25/26. The Ministry of Agriculture revised its import forecast for 24/25 from 4,75 million tons to 5 million tons. "Our current estimate includes 4,6 million tons of raw sugar and at least 1 million tons of syrup in sugar equivalent," it states.

“Despite this increase in imports, supply is still sufficient, with trade flows expected to remain bearish with a projected surplus exceeding 2,5 Mt between the third quarter of 2025 and the third quarter of 2026. While seasonal factors, such as the off-season period in Brazil and low domestic ethanol stocks, may offer some support to prices, the expected surplus between the third and fourth quarters of 2025 will likely dampen any significant recovery momentum that may occur in early 2026,” he explains.

The main question now revolves around whether the current bearish fundamentals will persist or begin to weaken, potentially paving the way for a shift in market sentiment. Several factors could influence this outlook, some of which include:

• Production interruptions: Adverse weather conditions in the Northern Hemisphere could prevent mills from starting or maintaining an efficient crushing pace, delaying or limiting availability. In Brazil's Center-South region, the possibility of recurring fires, similar to those observed in 2024, could also unexpectedly impact supply. 
• Stabilization of macroeconomic sentiment: a more stable macroeconomic environment may encourage investors to return to investing in higher-risk assets, potentially supporting a market recovery. 
• Strengthening demand: China is expected to continue buying, as arbitrage opportunities remain open. While inventory levels at destinations are difficult to measure, the lingering effects of previous supply deficits could lead to sustained demand. 
• Brazilian ethanol: Given the lower stocks expected for the season, the off-season may add support to sweetener prices.

That said, these factors remain speculative and largely unconfirmed, making them more “hypotheses” than reliable indicators of a bullish turnaround.