The global sugar market is caught in a fierce game between weak reality and strong expectations. The massive global sugar surplus inventory from the 2025/2026 crushing season remains unabsorbed, and an El Niño event, widely predicted by meteorological agencies to be "strong to super strong," has rapidly formed in the central and eastern equatorial Pacific Ocean. The bumper harvests have yet to be digested, while warnings of reduced production have already sounded—this is the core contradiction of the current global sugar market.

The Sword of Damocles hangs high

Since 2026, the sea surface temperature in the central and eastern equatorial Pacific has been rising continuously, and multiple indicators are approaching the same-period levels of the two super El Niño events in 1997-1998 and 2015-2016. The National Climate Center of China predicts that a strong to super eastern-type El Niño event will develop across the equatorial Pacific during this summer and autumn; the World Meteorological Organization estimates that the probability of a strong El Niño event occurring from July to September is 80%, and the probability of it lasting into November and beyond is as high as 90%; the US Climate Prediction Center states that the probability of an extremely strong El Niño event taking place from October to December stands at 81%, which may place it among the strongest such events on record.

Drought Hits Core Producing Areas Hard

India is the world's second-largest sugar producer, and this round of El Niño impact has been particularly direct — the southwest monsoon made a delayed landfall, and core sugarcane growing regions such as Maharashtra and Karnataka have been hit by persistent high temperatures and drought. As of June 15, India's cumulative rainfall was 53.54% lower than the average of the same period in the past 10 years, and rainfall in some areas in June alone was more than 40% below the historical average. The direct suppression of drought on the tillering stage of sugarcane has been reflected in yield forecasts. The Indian Sugar Mills Association estimates that the output in the 2026/2027 crushing season will drop from 28.3 million tons in the 2025/2026 season to 27.9 million tons, which is lower than the annual domestic consumption of about 28.5 million tons, marking the first time in years that production has fallen short of demand. Sugar inventories have fallen to a new low since 2016, at only about 4 million tons.

Amid expectations of production cuts, the Indian government announced on May 13 a ban on sugar exports, valid until September 30. In addition to weather factors, the ethanol-blended fuel policy has further tightened sugar supply. Under the dual pressure, India will find it difficult to resume large-scale exports for at least three upcoming crushing seasons. This means global trade flows will rely more on Brazil, and the "Brazil-dominant" pattern is amplifying the vulnerability of the supply chain.

Thailand is the world's second-largest sugar exporter and also the region most sensitive to El Niño. From January to May, the cumulative precipitation in Thailand's main producing areas was 38% below normal, and as of June 21, the cumulative rainfall since the start of the year was about 10% lower than the average. There are historical precedents of drought suppressing sugarcane yield: in the 2014/2015 crushing season, yield plummeted 12.3% year-on-year, and it dropped a further 17.4% in the 2015/2016 season. StoneX forecasts that Thailand's sugar output will fall 15% to 10.2 million metric tons in the 2026/2027 crushing season. Falling sugar prices have also prompted farmers to switch to alternative crops such as cassava. In the 2025/2026 crushing season, the sugarcane purchase price decreased 22% year-on-year to 900 Thai baht per ton, and the planting area is expected to shrink by about 2%. The combined effect of lower yield and reduced planting area makes Thailand's production cut the most certain among the three major sugar-producing countries.

The Brazilian sugarcane market is caught in a tug-of-war between two forces: rising sugarcane production and a low sugar-to-ethanol ratio. Conab forecasts that sugarcane output in the 2026/2027 crushing season will reach 709.1 million tons, a 5.3% year-on-year increase and the second-highest level in history. However, the actual pace of sugar production has been notably slow. Sugar output in the first half of June stood at 2.31 million tons, a 3% year-on-year decline. Meanwhile, sugarcane crushing volume rose 3% year-on-year to 39.2 million tons, while ethanol production surged 21% year-on-year to 2.16 billion liters. The sugar-to-ethanol ratio was only 45.86%, below the expected 47% for the crushing season. The core issue lies in the profit parity between sugar and ethanol. Ethanol offered higher returns in the early stage of the crushing season. As international oil prices retreated, the premium for ethanol narrowed, pushing the sugar-to-ethanol ratio up from 32.3% in April to 45.86% in the first half of June. Nevertheless, the current sugar-to-ethanol ratio remains at a multi-year low for the same period, and the market expects it to continue moving toward 47% to 48% in the later stage.

Institutions have divergent views on Brazil's sugar output in the current crushing season: the USDA estimates 42.5 million tons, while Itau BBA forecasts only 39.4 million tons. This divergence reflects differing expectations among institutions regarding the pace of recovery in the sugarcane yield ratio and weather disruptions, and the outlook for Brazil's sugar supply remains to be verified by crushing data.

The European Union was also not spared from the impact of extreme weather events. According to the latest forecast by the European Commission, the sugar production in the 2026/2027 crushing season is expected to plummet to 14.13 million tons, a 15% decline compared with the 2025/2026 season. The production cut stems from a double blow: the area under sugar beet cultivation has shrunk by 9% year-on-year, and the yield per unit is projected to drop by 6.5%. All major producing countries, including France, Germany and Poland, are seeing a downward trend. France, the EU's largest sugar producer, has recently been hit by a combination of persistent drought and yellowing disease, further exacerbating the risk of production cuts. Czarnikow has further revised down its sugar production forecast for the 27 EU member states to 13.9 million tons.

The supply and demand pattern has shifted from a substantial surplus to a shortage

The superimposed effect of multiple weather shocks is driving a fundamental shift in the global sugar market's supply and demand structure. The ISO estimates that global sugar production will reach 180 million tons in the 2026/2027 marketing year, a 1.1% year-on-year decrease, resulting in a supply gap of 262,000 tons in the global sugar market. StoneX predicts that the global sugar market will shift from a surplus of 2.29 million tons in the 2025/2026 marketing year to a shortage of 550,000 tons in the 2026/2027 marketing year, while Czarnikow has sharply reduced its surplus forecast from 3.4 million tons to 600,000 tons. Despite differences in the specific data from various institutions, the direction is highly consistent: the global sugar market is transitioning from surplus to shortage in the 2026/2027 crushing season.

The global sugar market is at a turning point shifting from "actual surplus" to "expected shortage". The critical weather period for the Northern Hemisphere from July to August has arrived, and the market has not yet fully priced in the El Niño event. If the disruption of the El Niño event continues until the early spring of 2027, the damage it causes to sugarcane yield will be long-term, and the global sugar market may enter a structural supply contraction cycle. The weather progress of major producing countries and the evolution of Brazil's sugar-to-ethanol ratio in the second half of the year will be core variables, and the logic of the "weather market" is shifting from expectation to realization.

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