Global sugar markets are on edge as El Nino-related weather disruptions threaten harvests across major producing nations, sending international raw sugar futures to their biggest monthly gain in over a decade.

Since early August, the Zhengzhou sugar futures主力 contract SR2701 has trended upward overall. The expectation of production cuts in major global producing countries, triggered by El Nino, combined with sharp gains in ICE raw sugar, has lifted the futures price center, with multiple intraday surges. However, momentum slowed in September, giving way to high-level volatility as long and short positions intensified, resulting in a modest pullback. By the close on September 10, the main contract settled at 5,449 yuan per ton.

"From early August until now, white sugar has shown a firm yet volatile trend. On one hand, it's buoyed by stronger international raw sugar prices and expectations of tighter global supply; on the other hand, August production and sales data revealed a clear improvement in consumption on the margin, with downstream players restocking moderately and driving up spot turnover. Notably, inventory drawdowns are accelerating in Guangxi and Yunnan. Fundamentals continue to improve, and the market's focus is gradually shifting to the new crushing season," said Wang Ying, soft commodities analyst at Nanhua Futures.

Global supply tightening underpins sugar prices

Since August 1, New York raw sugar futures have climbed a cumulative 28%, with August alone posting a 22% gain, the largest monthly increase since 2010. On September 2, prices touched an intraday high of 18.77 cents per pound, marking a 16-17 month peak; a further push to 18.92 cents came on September 8, before prices retreated back near the 18-cent level.

"The core driver behind the overseas strength is the tightening of global supply on the margin, with multiple key producing regions either cutting output or exiting the export market simultaneously. As a result, the International Sugar Organization (ISO) has revised its 2026/27 season supply-demand balance from a surplus to a small deficit. This overseas trend transmits to the domestic market through import costs, which is exactly what's driving the Zhengzhou sugar futures strength," said Chen Jiayi, senior soft commodities analyst at CITIC Futures.

However, Chen noted that China's dependence on sugar imports has declined, limiting the impact of out-of-quota imports. Consequently, the linkage between domestic and overseas sugar prices is gradually weakening. The overseas market now acts more as a "floor of support" (raising the price lower bound) for Zhengzhou sugar rather than a "ceiling of pressure" (capping gains) as in the past. The domestic market's own supply-demand elasticity is rising, with price movements on the margin increasingly determined by domestic balance sheets and spot market absorption. Overall, this round of sugar price gains is the combined result of "overseas setting the direction, domestic focusing on itself."

Wu Jingwen, senior researcher at CITIC Futures, echoed this view, stating that the domestic white sugar rally is largely driven by overseas gains. In reality, the 2025/26 season's high domestic output has been met with sluggish sales, and inventories remain significantly elevated year-on-year. Therefore, from a fundamental perspective, there aren't many bullish catalysts, making it difficult for domestic white sugar futures to replicate the smooth, substantial rally seen overseas.

Moreover, the correlation between New York raw sugar futures and domestic sugar prices has been evolving. NY raw sugar futures serve as the global pricing benchmark for sugar trade, with price fluctuations transmitting to China via import costs. This round's climb from around 15 cents to the 19-cent range has provided significant support to the cost of sugar imports under the 15% tariff. Given China's import dependence has fallen to roughly 13%, and out-of-quota imports are constrained by quotas, this transmission is more of a "floor support" logic rather than real-time linkage. The weight of domestic industrial inventories and spot absorption on prices has increased.

"Regarding positioning, according to CFTC data, the non-commercial net long positions in NY No. 11 raw sugar (broadly speculative including non-reportable positions) have accumulated for three consecutive weeks: approximately 77,000 contracts on August 18, 104,000 on August 25, and 132,500 on September 1. This shift reflects a clear rise in net long positioning from managed funds and smaller speculators, aligning with the upward price trend. The rapid accumulation of net longs not only signals strengthening market pricing for global production cuts but also suggests that positions are relatively crowded and increasingly sensitive to bearish news," Chen Jiayi added.

El Nino disrupts overseas growing regions

Notably, the impact of El Nino is drawing increasing market attention, mainly affecting overseas growing areas. The EU, India, and Thailand are all experiencing varying degrees of adverse weather, primarily high temperatures and drought, compounded by shrinking planted areas.

In this regard, Wu Jingwen stated that these three regions are expected to collectively reduce sugar output by approximately 5.5 to 6 million tons in the 2026/27 season. Consequently, the global sugar supply-demand balance for 2026/27 is set to swing from a slight surplus in the previous season to a significant deficit, providing substantial room for raw sugar prices to rise.

"Production expectations for major global producing regions are broadly pessimistic. For 2026/27, India's output is forecast by StoneX to drop to 27.9 million tons due to insufficient monsoon rainfall in key areas. Although Brazil's sugarcane crop has increased, a lower sugar mix ratio and increased rainfall during the May-July crushing period suggest central-southern Brazil's sugar output is expected to decline 4.2% year-on-year," Wang Ying said.

On Asia, Wang added that Thailand, hit by El Nino-induced drought and reduced sugarcane planting due to lower purchase prices, is likely to see new season production fall below 10 million tons. The EU, impacted by persistent heatwaves, drought, and shrinking acreage, is expected to see a sharp output drop, potentially falling below 15 million tons.

In contrast, the domestic market's main sugar-producing regions are expected to remain relatively stable. Unlike some overseas regions, Chen Jiayi noted that China is in an expansion cycle. The 2025/26 national sugar output is around 12.95 million tons, a significant recovery compared to the past decade. The mainstream estimate for 2026/27 leans toward 13 to 13.5 million tons. Guangxi and Yunnan cane sugar regions are generally increasing production. Guangxi's production cost is roughly 5,300-5,400 yuan per ton, with about 600,000 to 700,000 mu of expanded planting, corresponding to an additional 340,000 to 400,000 tons of sugar.

"Northern beet sugar, however, is set to decline due to reduced acreage. Inner Mongolia's area has dropped from 1.96 million mu to 1.3-1.4 million mu, a decrease of about 26%, with output at 500,000-550,000 tons (down from 684,800 tons last year, a 20%-27% decline). However, its relatively small size won't change the national picture of ample supply. Field research indicates that sugar mills show strong hedging intentions at current prices and are cautious. Regarding future consumption, mills' expectations are generally stable, with no strong expansion signals. It's worth adding that domestic production increases coupled with negative import parity mean Zhengzhou sugar pricing is more dominated by domestic balance sheets, which is the supply-side basis for the weakened domestic-overseas linkage," Chen Jiayi explained.

Furthermore, Wu Jingwen noted that downstream consumption data since August shows rapid month-on-month and year-on-year growth in sugar sales from Guangxi and Yunnan, accelerating inventory drawdowns. However, national sugar inventories remain at historically high levels, with expectations of substantial carryover into the next season. This could exert greater supply pressure on the new season on top of existing bumper crop expectations.

Addressing this, Chen Jiayi said that since Q3, sugar sales have shown structural volume increases, but it's crucial to distinguish between "sales volume" and "terminal consumption." In August of the 2025/26 crushing season, Yunnan sold 441,900 tons in a single month, roughly three times the historical average for the period (130,000-167,000 tons, average about 145,000 tons). Guangxi sold 717,300 tons, up 457,100 tons year-on-year, while Yunnan increased by 311,000 tons. This reflects a common "price-for-volume" phenomenon across producing regions amid domestic output expansion.

"The driver of higher sales isn't a surge in terminal sugar usage. First, low prices (Yunnan spot prices fell about 680-700 yuan per ton year-on-year in August-September) prompted mills to accelerate destocking for cash flow, increasing purchases from traders and rock candy processors, as well as cross-region procurement by processing mills. Second, Yunnan only completed its crushing season on June 27 this year, 36 days later than last year, meaning some sales that would have occurred in June-July were deferred to August. This is a timing mismatch, and inflated sales figures don't equate to a consumption leap," Chen said.

On terminal consumption, Chen added that actual end-use demand remains relatively stable, with 2026 annual white sugar consumption needs largely maintaining a 15 to 16 million ton range. Downstream demand from confectionery, beverages, and baking is moderate, with no concentrated restocking observed. Substitute sweeteners like syrup and premix powder continue to erode some industrial demand. For instance, northern fructose corn syrup takings reached 2.6285 million tons by mid-August, up 6.6% year-on-year.

Short-term wide volatility awaits signals

Despite production cut expectations in overseas regions, domestic white sugar inventories remain relatively ample year-on-year. As of end-July, national industrial sugar inventory for the 2025/26 season stood at 3.72 million tons, up 2.11 million tons or 131.1% year-on-year. Guangxi held 2.2134 million tons, up 1.2445 million tons or 128.4%, and Yunnan had 906,500 tons, up 439,200 tons or 94.5%, both hitting 11-year highs.

However, Chen Jiayi pointed out that high industrial sugar inventories don't necessarily equate to falling prices. The lower bound of current prices is supported by the overseas market, while the upper bound is constrained by high inventories and hedging activity. The impact of inventories on prices is neutral-to-loose, neither a strong upward driver nor a factor limiting deep declines.

Looking ahead for sugar futures, Wang Ying indicated that the short-term upward channel is not smooth. As destocking nears its end, market attention is expected to shift to new season production changes. Unrealized bullish factors are likely to materialize. Therefore, from a medium-to-long-term perspective, drawing from historical El Nino events and their price realization, white sugar still has considerable upside potential. Investors could watch for buying opportunities on pullbacks to relatively low levels.

Meanwhile, Chen Jiayi said that New York raw sugar prices around 19 cents per pound face policy and hedging pressures, with India's import parity ceiling currently around 19 cents and Brazil's far-month hedging and crowded positioning acting as upper constraints. Below, low inventories and tight balance provide support, with ISO's initial estimate of a 200,000-300,000 ton deficit for 2026/27, EU production cuts, and India's low 35-day inventories. Thus, this appears more like a shift in market rhythm rather than a trend reversal, with subsequent movement likely characterized by wide-ranging volatility.

"Domestic white sugar futures exhibit a 'supported floor, awaiting catalyst' pattern. The bottom is anchored by overseas cost, while the top is pressured by high domestic industrial inventories and mill hedging. In terms of positioning, CFTC non-commercial net longs had accumulated to approximately 132,500 contracts as of September 1, indicating that marginal pricing power leans bullish but is also crowded, with heightened sensitivity to bearish news. A clearer supply-demand signal is needed, such as confirmation of Brazil's sugar mix or further clarity on India's output and imports, before making judgments. Market uncertainty is high, and views require dynamic adjustments as data evolves," Chen Jiayi noted.

Ultimately, the sugar market currently sits at a crossroads, balancing tight global supply signals against ample domestic inventories, with traders seeking clearer directional cues amid persistent volatility.