Sugar balances between ample supply and high oil prices

The sugar market remains finely balanced. On the one hand, signals of a more abundant global supply are weighing on prices, especially due to higher production prospects in India and a solid harvest in Brazil. On the other hand, higher oil prices and related geopolitical tensions are providing support. As a result, the market remains volatile and the direction is far from clear.On the futures markets, that erratic picture is clearly visible. In London and New York, sugar quotations rose, only to surrender those gains shortly afterwards. In mid-April, however, the market bounced back, only to take a step back again in recent days.In particular, developments in the energy market have recently been a major factor shaping sentiment in the sugar market. When oil and gasoline prices fall, it becomes less attractive to process sugarcane into ethanol, and Brazilian processors in particular then divert more sugarcane to sugar production. That puts pressure on the sugar price. At the same time, a higher oil price can have the opposite effect and provide support, because ethanol then becomes more attractive. A stronger Brazilian real is also lending support to prices because Brazilian sugar is then less attractive on the world market.Drought Brazil is and remains the most important price driver in the sugar market. Early indications for the new season point to lower sugarcane production in the central-southern part of the country. At the same time, market participants are taking into account that Brazil is processing more sugarcane into ethanol. Drier weather in parts of South America is favorable for the harvest, but a possible El Niño (the weather phenomenon that usually causes drought in Brazil) later this year also keeps concerns about drought-related yield losses alive.Meanwhile, mixed signals are coming from India. Higher production estimates for 2026/27 and the absence of new export restrictions are easing fears of tight supply. At the same time, estimates of the global balance vary widely. While some analysts still expect a surplus, others see an increasingly smaller surplus or even a renewed deficit once Brazil produces more ethanol and the monsoon in Asia disappoints. The European market is also showing increasing signs of pressure. The average sugar selling price in the EU stood at €510 per tonne in March, about €40 lower than a year earlier. At the same time, stocks remained high and refining activity for imported raw cane sugar increased sharply. This prompted the European Commission to temporarily suspend the scheme covering raw cane sugar imports for refining into white sugar, in order to ease pressure on the internal market and restore balance. On balance, the European sugar market remains caught between fundamentally ample supply and a range of factors that could still tighten the market in the short term.