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Sugar is getting a lot less sweet for buyers.
Sugar prices surged 21.5% in August, marking its strongest monthly gain since October 2010, when it rose 24%. The United Nation’s Food and Agriculture Organization Food Price Index also rose in August amid broad-based increases, led by sugar.
“The surge reflected expectations of lower sugar beet yields in the European Union due to adverse weather, concerns over the impact of El Niño on production prospects in key producing countries in Asia, lower sugar production in Brazil, and India’s announcement of duty-free raw sugar imports,” the organization said in its recent report.
The August rally pushed sugar futures ahead of the S&P 500 on a year-to-date basis. The sweetener is now up about 20% in 2026, versus the nearly 13% advance for the broad market index.
The U.N.’s Food and Agriculture Organization points out that the sugar rally is tied to several factors, which are collectively pushing the prices in the market.
The sugar rally reflects a shift in expectations about global supply, according to William Osnato, Barchart director of commodity data research and analysis. Osnato told CNBC that the damage to Europe’s sugar-beet crop during a summer heat wave was one of the biggest immediate factors.
Sugar beets are grown in the same places and around the same time as corn and wheat, and so the heat wave can significantly affect sugar production.
“That’s been factored in over the last month. So a bunch of organizations lowered their production estimates,” Osnato said.
Different organizations have either slashed production estimates or increased deficit estimates in their recent reports. The European Commission’s latest sugar balance sheet estimates a decline in EU production of 19% to 13.4 million metric tons, in the 2026/27 marketing year, from 16.6 million tons in 2025/26. Citi projected a world deficit of 1.3 million metric tons in a Tuesday note, and Green Pool Commodity Specialists estimated 3.2 million metric tons.
“What is usually consistent is that they’re all going in the same direction,” Osnato said. “They’re all increasing the deficit.”
In the note, Citi analysts called sugar a “highest-conviction bullish” market among agricultural commodities traded on the Intercontinental Exchange. The bank raised its price target to 19 cents per pound over three months, citing tightening inventories, India’s unexpected import program and deteriorating weather in India, Thailand and the EU.
El Niño threatens upcoming harvests
Osnato said that El Niño, a global climate pattern that can bring warmer ocean temperatures and severe weather, is likely “the biggest forward-looking concern.”
A potentially extreme El Niño intensifies the pressure on sugar prices.
Brazil, India and Thailand together account for approximately 70% of global sugar exports. Goldman Sachs said in a note that drought during the growing season could lower cane yields, while excessive rainfall during harvest could interrupt fieldwork and reduce the sugar content of cane. The Climate Brink’s multi-model median forecast shows the temperature anomaly for the Niño 3.4 region in the Pacific Ocean peaking near 3.9 degrees Celsius — or about 39 degrees Fahrenheit — in November. That’s well above the 2 degrees Celsius, or 35.6 degrees Fahrenheit, threshold for a very strong El Niño.
India has faced below-normal rainfall in key sugar-producing regions. A weak monsoon can deplete reservoirs, discouraging many farmers from planting water-intensive sugarcane for the following season. Further, unusually warm Pacific Ocean temperatures are expected to bring erratic rainfall and water shortages across Thailand.
Brazil’s ethanol pivot and India’s sugar imports
Higher energy prices are also making ethanol more attractive relative to sugar in Brazil, where mills can shift cane between the two products.
“When the price of oil increases, countries that produce ethanol from sugar have a higher incentive to produce more ethanol and export less sugar to the global market,” Rob Johansson, director of economics and policy analysis at the American Sugar Alliance told CNBC in an email. “With oil prices over $90 a barrel, countries like Brazil, which heavily subsidizes its ethanol industry, are producing more biofuel, lowering the amount of sugar available on the market and putting upward pressure on prices,” Johansson said.
Brazil alone accounts for roughly half of world sugar exports. Brazilian mills can typically shift their production mix between sugar and ethanol, depending on which is more profitable.
According to Goldman Sachs’ analysis, because corn is an important feedstock for ethanol production alongside sugarcane, a weaker corn crop due to El Niño-related droughts may divert more sugarcane into ethanol production, leaving less sugar available for export.
Rain has also delayed harvesting in Brazil, Osnato said. Some production could be recovered once fields dry, making a rebound in Brazilian sugar content or faster harvesting one of the clearest downside risks to prices.
India, the world’s second-largest sugar producer behind Brazil, recently authorized 1 million metric tons of duty-free raw-sugar imports. The Indian government said the decision was intended to bolster domestic availability amid lower production, seasonal demand and rising prices. With India restricting exports while entering the market as a buyer, less sugar could be available to other importing countries.
Osnato said the decision followed two disappointing crops and is significant because it was India’s first import authorization since the 2017-2018 season. Even if India imports only about half the authorized amount, he said, the move reinforces the view that supplies are tighter than previously estimated.
“Brazil remains the market’s key balancing supplier, but weather-related execution risks during the remainder of the harvest leave little margin for error,” Citi analyst Arkady Gevorkyan wrote in a note.
— CNBC’s Nick Wells contributed reporting.