Apr 22 / Lívea Coda

Live With Experts - Sugar Market Key Points

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Executive Summary

Sugar prices experienced sharp volatility throughout March and early April, largely driven by geopolitical escalation and its effects on the energy complex and logistics rather than any material change in underlying sugar fundamentals. The intensification of tensions between the United States and Iran generated a renewed risk premium across financial markets, lifting oil and LNG prices and triggering short covering activity in the sweetener.

Raw sugar briefly traded above 16.0 c/lb, while white sugar premiums widened temporarily, reflecting logistical sensitivities related to refinery locations. However, as energy prices corrected and geopolitical risk eased, sugar prices lost momentum, reinforcing the view that recent rallies were technical and macro driven rather than structurally supported.  

Geopolitics and Macroeconomics Overview

Geopolitical developments were especially relevant through their transmission into the energy complex between March and early May. Attacks on energy infrastructure in the Middle East intensified concerns over long term energy supply, pushing prices higher and increasing inflationary risks for energy dependent economies. For the sugar market, this translated into short lived support through expectations of a full cost pass-through from Petrobras, which is a net importer of gasoline. Sugar prices rose fast as they triggered short covering, as many expected ethanol to benefit from gasoline’s higher prices, inducing a higher demand and a lower mix in the biggest sugar producer. Nonetheless, with no passthrough, as oil and LNG prices corrected, this support diminished. 

Figure 1 – Key Energy Contracts

Source: Bloomberg, LSEG

From a macroeconomic perspective, risk aversion rose sharply alongside the escalation of geopolitical tensions. The VIX index climbed materially during the period, while safe haven assets such as gold appreciated against the US dollar. Central banks reacted cautiously: the Federal Reserve opted to keep rates unchanged amid uncertainty over inflation persistence, while Brazil’s COPOM delivered a 25 bp cut, citing signs of domestic economic cooling despite inflation remaining above target. Although the interest rate differential continues to offer some support to the BRL, elevated global uncertainty limits currency stability and increases exposure to capital flow volatility.

Figure 2 – VIX Index: +12.9 Jan-2 vs Apr-6

Source: CFTC, Hedgepoint

Fundamentals

Despite headline volatility, the global sugar balance remains oversupplied. Brazil continues to anchor global trade flows with record high production, while partial recoveries across the Northern Hemisphere further reinforce bearish fundamentals. Even where supply constraints exist, these remain insufficient to offset Brazil’s availability under current conditions. As such, downside pressure continues to dominate the medium term outlook.

In the Northern Hemisphere, production developments offered mixed signals but no meaningful shift. India continues to face tighter availability, supported by lower production prospects and export limitations. Still, the depreciation of the rupee has allowed for some sugar to be exported amid closed parity, even though expectations remain that the country will not fully meet its export quotas, particularly given El Niño related risks to production recovery next season.

Thailand showed clear yield improvements, offsetting part of India’s shortfall, while Mexico also recorded better performance. In Central America, favorable weather conditions benefited cane development, with Guatemala reporting a 1.5% year on year increase in sugar output so far and El Salvador posting near 8% growth.

China’s sugar balance highlights demand side strength rather than production weakness. Domestic output between October and February remained broadly unchanged year on year, yet imports rose nearly 50% over the same period, reflecting an open arbitrage window and reinforcing the country’s willingness to build stocks, in line with its food security policy.

Center-South and price dynamics

Brazil remains the dominant force shaping global sugar dynamics. The 2025/26 Center South crop is expected to exceed 40 million tons of sugar, supported by cane crushing close to 608 million tons and a high sugar mix – 50.4%. Export availability may surpass 31 million tons, reinforcing Brazil’s role as the world’s largest supplier. Weather conditions throughout 2026/27 planting and development cycle were largely favorable, with cumulative precipitation and vegetation health indicators remaining close to or above historical averages.

Therefore, looking ahead to 2026/27, cane availability in the Center South is projected near 635 million tons under normal weather conditions, with yields estimated around 78.5 t/ha. While this points to another year of abundant supply, attention increasingly turns to the sugar ethanol mix. Ethanol parity has regained competitiveness since the end of 2025, supported by lower stocks and improved hydrous prices, particularly when CBios are incorporated. Although theoretical studies would justify a sugar mix closer to 44.5%, to solve the supply and demand equation, operational constraints are likely to keep it near 48%, limiting the speed of adjustment.

From a price perspective, the effective sugar floor is estimated around 13.5 c/lb, equivalent to hydrous prices near BRL 2.2 per liter ex mill. At this level, pump parity should be favourable in most Brazilian states, creating enough demand to consume the extra raw material in the form of hydrous, alleviating sugar’s trade flow.

Main Risks

Sustained price upside remains limited in the absence of a structural supply shock.

Support could come from the intensification of the US-Iran conflict and another round of upticks on the energy complex, possibly bringing Petrobras to a full import cost pass-through. If the latter occurs, considering an arbitrage estimated at around 1.7 BRL/liter, the floor price of 13.5 c/lb rises to 16.7 c/lb.

Figure 3 – Petrobras’ average import arbitrage in the Center-South region (BRL/liter)

Source: ANP, Bloomberg, Hedgepoint

The main upside risk, though, continues to be weather related, with a strong El Niño capable of disrupting Northern Hemisphere crops during the 2026/27 cycle and potentially tightening global balances into 2027. The pattern’s effects are more intense in Central America, bringing dry and hot weather through late autumn and winter, being correlated with lower yields. In Southeast Asia, El Niño can weaken the southwest monsoon between June and September, also weighing on sugarcane development in India and Thailand.

Figure 4 – ENSO Probability

Source: International Research Institute for Climate and Society (IRI)

Summary

In conclusion, while geopolitical shocks and energy volatility may continue to generate short term price dislocations, the global sugar market remains structurally bearish. Brazil’s production strength, combined with partial recoveries elsewhere, keeps supply ample and caps sustained price appreciation. Monitoring weather evolution, ethanol parity, and geopolitical developments remain essential, but for now, fundamentals dominate the medium term outlook.


Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com


Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com

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