Mar 30 / Lívea Coda

Some fundamentals shifts, but no actual change

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  • No material change in sugar fundamentals, even with some supply developments.
  • India's shortfalls could be offset by Thailand and potentially higher Brazilian availability.
  • Weather supports upside risks for Brazil’s next crop.
  • Recent price support stems from speculative short covering and energy-driven spillovers.
  • The 15.4–15.9 c/lb range reflects a temporary balance, with prices likely to fall if energy support fades or geopolitical risks ease.

Some fundamentals shifts, but no actual change

There have been no material changes to the effective fundamentals of the sugar market. Nevertheless, market attention has tilted toward recent supplyside developments. As discussed in our previous report, any reduction in India’s availability could be partially offset by improved prospects in Thailand, or even higher mix from Brazil. Regarding the latter, the latest UNICA release, published on Friday (27), brought figures that allowed us to keep our estimates that the 2025/26 crop could reach approximately 610 Mt of cane, translating into around 40.5 Mt of sugar, depending on the pace of the start of the 2026/27 season. Notably, UNICA has not published data for February, with the most recent report focusing its analysis on the first half of March. This gap raises concerns regarding data availability and consistency for the Center South region. 

Even so, weather conditions have been largely supportive of cane development, suggesting potential upside risks to our current 630 Mt estimate for the 2026/27 crop. If confirmed, higher Brazilian availability would reinforce the prevailing bearish fundamentals, as potential disruptions elsewhere could be accommodated through adjustments in the sugar ethanol mix, which is expected to decline in the upcoming season due to prevailing price-dynamics. In fact, Friday’s report already points to a bullish trend for 2026/27, contributing to the short-term rise in prices.

Figure 1 – Center-South Cumulative Precipitation (mm)

Source: Bloomberg, Hedgepoint

Nevertheless, price support has continued to originate primarily from outside the sugar market itself. Last week’s rally was driven largely by short covering by hedge funds, which reduced their positions by more than 100 thousand contracts, according to the CFTC report, which was also updated on Friday, dating movements up until Tuesday (24). For instance, prices reached 15.8 c/lb on Tuesday, accompanied by a rather stable trading volume. However, the market appears to have found resistance near this level, indicating the formation of a short term trading range between 15.4 and 15.9 c/lb. While this range is relatively constructive, it rests on fragile foundations, being driven mainly by speculative positioning amid heightened macroeconomic and geopolitical volatility.

Figure 2 – Speculative Net Positioning (‘000 lots)

Source: CFTC, Hedgepoint

Regarding the latest developments, during last week, the US–Iran conflict remained escalatory despite increased diplomatic signaling. US and Israeli strikes within Iran continued, while Iran carried out missile and drone attacks against Israel and US-linked targets in the Gulf. Over the same period, the Strait of Hormuz remained heavily disrupted, with Iran allowing only limited and selective tanker transits, keeping effective flows well below normal levels. Besides that, the recent involvement of Houthi in the conflict rose more concerns regarding oil supply and the Strait of Hormuz transit. Consequently, oil prices remained elevated and volatile, supported by persistent supply risks as well as higher freight and insurance costs, despite emergency stock releases aimed at mitigating near term shocks. Since the beginning of 2026, Brent crude prices have risen by approximately 78%, while RBOB gasoline has increased by over 80%.
This dynamic has raised concerns for the sugar market, not only through cost spillovers but also due to its direct linkage to the energy complex, particularly in Brazil, where mills retain flexibility between sugar and ethanol production. As previously discussed, these factors can influence the sugar price floor; the longer and more intense the conflict becomes, the higher this floor may move, subject to Petrobras’ cost pass through policies.

Figure 3 – Raw Sugar vs Oil Price Index (Jan 1st =100) 

Source: LSEG, Hedgepoint

The market appears to have at least partially anticipated this movement, as the possibility of a lower sugar mix supported by the energy complex has been widely discussed. Consequently, the current range of 15.5 c/lb to 15.9 c/lb can be viewed as a temporary holding level. Under a scenario of full cost pass through and a prolonged conflict, prices could break above this ceiling. Conversely, in the absence of pass through in the near term or in the event of a conflict resolution, prices may correct back toward previous levels, closer to 14 c/lb.

Summary

Sugar market fundamentals remain broadly unchanged, with attention shifting to supply developments, particularly Brazil, where supportive weather and stable UNICA’s estimates reinforce a bearish outlook. Price action has been driven mainly by speculative short covering and external factors, notably elevated energy prices linked to the escalating US–Iran conflict, which have supported sugar through cost spillovers and ethanol parity. As a result, prices are consolidating in a fragile 15.4–15.9 c/lb range, already reflecting expectations of a lower sugar mix, with upside dependent on sustained energy support and downside risks tied to conflict resolution and limited cost pass-through by Petrobras.


Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com


Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com

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