March 25, 2026
International sugar futures posted their strongest gains in months on Tuesday, with New York raw sugar hitting a five-month peak and London white sugar reaching its highest level in five and a half months. The rally was driven by a roughly 4% surge in crude oil prices, which strengthened the economic case for ethanol production and raised expectations that sugar mills — particularly in Brazil — would divert more cane away from sweetener output.
What Happened in the Markets
Across the New York ICE exchange, all major raw sugar contracts closed firmly in the green. The benchmark May 2026 contract gained 0.36 cents, or 2.32%, to settle at 15.90 cents per pound. July 2026 rose 1.97% to 16.03 cents, October 2026 added 1.68% to close at 16.35 cents, and March 2027 climbed 1.44% to 16.95 cents per pound.
London’s white sugar market saw even sharper advances. The May 2026 contract jumped $13.90, or 3.10%, to $462.60 per metric ton. August 2026 gained $8.40 to $461.00, October 2026 rose $7.10 to $462.20, and December 2026 added $6.50 to settle at $463.20 per ton.
The Oil-Ethanol-Sugar Connection
The mechanism linking crude oil to sugar prices is well established but has taken on renewed significance amid the current geopolitical turmoil. When oil prices climb, ethanol becomes more competitive as a fuel blend, incentivizing mills to process a larger share of their cane into biofuel rather than sugar. This dynamic is especially pronounced in Brazil, the world’s largest sugar producer and exporter, where mills function as flexible biorefineries capable of adjusting their production mix on a near-daily basis in response to market signals.
João Baggio, CEO of G7 Agro Consultoria, noted that Brazil’s Center-South region was already expected to tilt its 2026/27 crop-year production mix toward ethanol. However, escalating conflict in the Middle East and the resulting spike in energy prices have reinforced that trend considerably. Baggio argued that increased biofuel output would provide sustained price support for sugar throughout the production cycle.
Strait of Hormuz Disruption Adds Another Layer
Beyond the ethanol substitution effect, the ongoing closure of the Strait of Hormuz has introduced a separate source of supply disruption. According to industry data, the blockage has impacted an estimated 6% of global sugar trade by restricting the flow of raw sugar to Gulf-based refineries. Sugar consultant Michael McDougall has pointed out that the Gulf region imports roughly 10% of the world’s raw sugar through the strait each year, meaning Middle Eastern tensions are squeezing the market from both the logistics and demand sides simultaneously.
Brazil’s 2026/27 Season: A Structural Shift Toward Ethanol
Brazil’s production decisions carry outsized influence on the global sugar balance. The International Sugar Organization’s senior economist Peter de Klerk has projected that the Center-South region will crush approximately 620 million metric tons of cane in 2026/27, with sugar output rising only modestly — by about 300,000 tons — as the sugar-to-ethanol production split settles near 49:51.
The numbers on the ethanol side are more dramatic. U.S. brokerage StoneX estimates that Brazil’s combined sugarcane and corn ethanol production will increase 7.9% in the 2026/27 marketing year to 36.5 billion liters, with sugarcane ethanol up 4.4% and corn ethanol surging 17%. Rabobank expects more than 3 billion liters of new corn ethanol capacity to come online in 2026 alone. Industry observers anticipate that nearly 4 billion liters of additional ethanol supply will reach the market during the season, marking an unprecedented expansion.
Brazil’s “Fuel of the Future” legislation, which mandates higher biofuel blending ratios, is accelerating this structural reallocation. As the policy ramps up, a growing share of the country’s cane crop is being permanently redirected from sugar to energy production, tightening exportable sugar supplies over the medium term.
The Bear Case: Global Surplus Still Looms
Despite the bullish energy-driven narrative, the market has not lost sight of a fundamental challenge — the world is still producing more sugar than it consumes. Commodity supply chain firm Czarnikow forecasts a global surplus of 3.4 million metric tons in 2026/27, following an even larger 8.3-million-ton surplus in 2025/26. The U.S. Department of Agriculture has projected 2025/26 world sugar production at a record 189.3 million tons, with Brazil contributing a record 44.7 million tons and India posting a 25% year-on-year increase to 35.25 million tons.
India’s policy moves could add further supply. In February, Indian authorities approved an additional 500,000 tons of sugar exports for the 2025/26 season on top of the 1.5 million tons already cleared in November. Moreover, the Indian Sugar and Bio-Energy Manufacturers Association has lowered its estimate of sugar diverted to ethanol production from 5 million tons to 3.4 million tons, potentially freeing up further export volumes.
Growing Global Appetite for Biofuels
On the demand side, the outlook for ethanol consumption continues to strengthen. Multiple countries are evaluating policies to increase biofuel blending in response to persistently high gasoline prices. Alberto Peixoto, a director at AP Commodities, has observed that ethanol demand is rising steadily, propelled by crude oil prices that have more than doubled since the start of the year. Czarnikow has similarly highlighted a structural uptick in global biofuel demand as governments seek energy diversification.
What to Watch Next
For the current rally to prove durable, the ethanol premium must remain strong enough to divert sufficient cane volumes away from sugar production, effectively shifting the global balance from surplus toward deficit. While Tuesday’s price action suggests the market is actively pricing in this possibility, the substantial surplus forecasts on the books provide a clear ceiling for how far prices can run without a fundamental shift in supply dynamics.
Market participants will be closely monitoring three key variables in the weeks ahead: the trajectory of the Middle East conflict and its impact on energy markets, real-time data on Brazil’s cane allocation decisions as the new crushing season gets underway, and any further policy signals from India regarding export quotas and ethanol diversion targets. Together, these factors will determine whether this rally represents a temporary spike or the beginning of a more sustained repricing in the global sugar market for 2026.
This article is based on publicly available market data and analyst commentary from multiple sources.
