Global Sugar Market Faces Producer Surplus Formula Pressure Amid Record Output

Sugar prices are sliding under the weight of mounting global supplies, with a complex interplay of production increases across major regions creating market imbalances that challenge traditional supply-demand equilibrium. The March NY world sugar #11 and London ICE white sugar #5 contracts have both declined recently, reflecting trader concerns about the structural producer surplus reshaping the commodity landscape.

Brazil’s Record Sugar Output Reshapes Market Equilibrium

Brazil’s cumulative 2025-26 Center-South sugar output through December reached 40.222 MMT, up 0.9% year-over-year, signaling continued expansion. More significantly, the ratio of sugarcane crushed for sugar production rose to 50.82% in 2025-26 from 48.16% in 2024-25, demonstrating a strategic shift toward higher sugar yields. Brazil’s crop forecasting agency Conab raised its 2025-26 sugar production estimate to 45 MMT from a previous forecast of 44.5 MMT, setting the stage for record-breaking output that pressures global pricing structures.

The impact becomes clearer when applying the producer surplus formula to Brazilian markets—as prices decline, producers facing fixed costs continue pushing output to maximize revenue, creating a vicious cycle. Consulting firm Safras & Mercado provided some relief to the market outlook, noting that Brazil’s sugar production in 2026-27 will fall by 3.91% to 41.8 MMT from 43.5 MMT expected in 2025-26, with sugar exports projected to decline 11% year-over-year to 30 MMT.

India’s Surge in Production and Export Flexibility

India’s 2025-26 sugar output through January 15 reached 15.9 MMT, up 22% year-over-year, according to the India Sugar Mill Association (ISMA). The ISMA raised its full-year 2025-26 India sugar production estimate to 31 MMT from an earlier forecast of 30 MMT, representing an 18.8% year-over-year increase.

Critically, ISMA cut its estimate for sugar used for ethanol production in India to 3.4 MMT from a July forecast of 5 MMT, freeing up additional supply for export markets. The government’s decision to permit additional sugar exports to reduce domestic supply glut has intensified market pressure—India’s food ministry approved mills to export 1.5 MMT of sugar in the 2025-26 season under its quota system established in 2022-23. As the world’s second-largest sugar producer, India’s export flexibility demonstrates how policy interventions disrupt the traditional producer surplus formula that once maintained price stability.

Thailand’s Contribution to the Global Supply Glut

Thailand, the world’s third-largest sugar producer and second-largest exporter, is projected to increase its 2025-26 sugar crop by 5% year-over-year to 10.5 MMT according to the Thai Sugar Millers Corp. The USDA’s Foreign Agricultural Service (FAS) provides a slightly more conservative estimate of 10.25 MMT for Thailand’s 2025-26 production, representing a 2% year-over-year increase. Nevertheless, Thailand’s expanded output contributes meaningfully to the global oversupply dynamic.

Understanding Producer Surplus Formula in Commodity Markets

The producer surplus formula illustrates why commodity traders face structural challenges: when global output expands faster than consumption, the equilibrium shifts disadvantageously for price maintenance. March futures witnessed increased fund positioning, with the weekly Commitment of Traders (COT) report showing funds boosted their white sugar positions in the week ended January 20 by 819 to a record 49,022 net long positions—the highest level since 2011 data began. This excessive long positioning could amplify any price decline if sentiment shifts.

Global Supply Projections Signal Persistent Oversupply

The International Sugar Organization (ISO) forecasted a 1.625 million MT sugar surplus in 2025-26, following a 2.916 million MT deficit in 2024-25. ISO attributed the surplus to increased sugar production in India, Thailand, and Pakistan, with global sugar production projected to rise 3.2% year-over-year to 181.8 million MT in 2025-26.

Sugar trader Czarnikow boosted its global 2025-26 surplus estimate to 8.7 MMT in November, up 1.2 MMT from a September estimate of 7.5 MMT. Covrig Analytics raised its 2025-26 global sugar surplus estimate to 4.7 MMT from 4.1 MMT in October, though it projects the surplus will narrow to 1.4 MMT in 2026-27 as weak prices discourage production expansion.

Market Outlook: When Will Supply-Demand Balance Recover?

The USDA, in its bi-annual report released in December, painted a bearish picture for near-term prices: global 2025-26 sugar production would climb 4.6% year-over-year to a record 189.318 MMT, while global 2025-26 human sugar consumption would increase only 1.4% year-over-year to a record 177.921 MMT. The USDA also forecast that 2025-26 global sugar ending stocks would fall 2.9% year-over-year to 41.188 MMT.

Regionally, the FAS predicted Brazil’s 2025-26 sugar production would rise 2.3% year-over-year to a record 44.7 MMT, while India’s 2025-26 sugar production would increase 25% year-over-year to 35.25 MMT, driven by favorable monsoon rains and increased sugar acreage. These projections underscore how the producer surplus formula continues to operate in reverse—as prices fall, global supply remains elevated because production decisions were made months earlier based on higher price expectations.

The convergence of record production across multiple continents, combined with modest consumption growth, creates a market environment where the traditional supply-demand balance supported by producer surplus equilibrium will take time to restore. Traders monitoring commodity markets should prepare for extended downward pressure until production incentives realign with pricing realities.