Crude Oil Strength Sparks Short Covering in Sugar Futures

Core Insights - Sugar prices have recently increased due to a rally in WTI crude oil, which has led to short covering in sugar futures, benefiting ethanol prices and potentially reducing sugar supplies as mills may shift focus to ethanol production [1] Group 1: Sugar Production and Supply - Brazil's sugar production in the first half of August rose by 16% year-on-year to 3,615 million tons, with the percentage of sugarcane crushed for sugar increasing to 55% from 49.15% the previous year [2] - Covrig Analytics reported that Brazilian sugar mills are currently prioritizing sugar production over ethanol, driven by drier cane crops [3] - Conab has reduced its Brazil 2025/26 sugar production estimate by 3.1% to 44.5 million tons, citing lower sugarcane yields due to drought and excessive heat [5] Group 2: Global Sugar Market Outlook - The International Sugar Organization (ISO) forecasts a global sugar deficit of 231,000 tons for the 2025/26 season, marking the sixth consecutive year of deficits, with global production expected to rise by 3.3% year-on-year to 180.6 million tons [4] - The USDA projected a record global sugar production of 189.318 million tons for the 2025/26 season, with ending stocks expected to increase by 7.5% year-on-year to 41.188 million tons [6] - Expectations for abundant sugar supplies are currently undermining sugar prices, with a projected global sugar surplus of 7.5 million tons for the 2025/26 season, the largest in eight years [6]