Sugar prices have surged to their highest level in 16 months as El Niño threatens supply from major producing regions, triggering a sharp reversal in fund positioning and pushing open interest to a record. Raw sugar futures for October delivery settled at 17.47 cents per pound on Tuesday, the highest since April 2025. The contract gained 60 points in the session and has risen 281 points this month. March futures closed at 18.46 cents per pound.
The rally reflects a shift in market perceptions toward tighter supply. India is considering allowing tariff-free sugar imports, which would reverse its recent role as a major exporter. After El Niño was confirmed in June, rainfall in India declined in July, with drought conditions reported in Maharashtra and Uttar Pradesh. Indian mills plan to start crushing earlier, moving the season from October to August, further supporting prices.
Thailand, the world’s second-largest sugar exporter, faces concerns that El Niño could disrupt rainfall during cane development. Extreme heat is also weighing on production prospects in other Asian countries and in European beet crops.
Brazil’s Center-South is not immune. Harvest progress is already 28 days behind schedule, and renewed rains in September could leave remaining cane unharvested, according to professor Fábio Marin. Lower sucrose content is making sugar production more difficult, although improved yields provide some offset. Government data showed Center-South cane crushing fell 8.4% year on year in the second half of July, while sugar output dropped 17.6%, leaving the region 2.4 million tonnes short of last season’s pace. Safras & Mercado analysts project a potential 10 million-tonne global shortfall in the crop year starting in October.
Funds have reversed course aggressively. They bought a net 145,000 futures contracts over two weeks, the largest two-week net purchase in 20 years, according to FG/A. Market volatility has risen, and Archer Consulting director Arnaldo Corrêa said short covering could push prices toward 20 cents per pound. Safras & Mercado expects prices to reach 22 cents in October and potentially 25 cents between December and the first quarter of next year.
Open interest in raw and refined sugar futures reached 2.3 million contracts last week, the highest since February 2010, according to Intercontinental Exchange. The U.S. Climate Prediction Center sees a 90% chance of a very strong El Niño in the second half of 2026 through the first half of 2027, and a 69% chance of a historic event stronger than any since 1950. Funds poured a record $2.5 billion into raw sugar contracts during the period. Some mills used the rally to hedge, but those with short positions face growing pressure to buy back contracts, which could amplify volatility.
