Sugar prices continued their upward trend, reaching a six-week high, driven primarily by concerns over weak monsoon rains in India. India's Meteorological Department reported cumulative monsoon rainfall at 42% below normal as of June 29, with forecasts suggesting this year's monsoon could be the weakest in 11 years. This meteorological outlook for India, the world's second-largest sugar producer, has led to sharp reductions in projected crop yields and heightened fears that India may extend export restrictions, thus removing a significant portion of sugar from the international market. Financial markets have reacted by aggressive repricing of global deficit expectations, and commercial buyers are actively hedging against further agricultural disruptions.
Adding to supply anxieties in sugar are structural shifts in Brazil, the world's leading sugar producer. Unica reported that Brazil Center-South sugar production through May is down 2.0% year-over-year. Millers in Brazil are increasingly diverting sugarcane crushing away from sugar production and towards ethanol manufacturing, a move incentivized by higher global energy and crude oil prices. The percentage of cane allocated for sugar processing in Brazil dropped to 41.42% from 50.09% last year. This trend has prompted major commodity researchers to revise their global sugar balance estimates from an expected surplus to a projected deficit. For instance, Czarnikow cut its global 2026/27 sugar balance estimate from a surplus of 1.4 MMT to a deficit of -100,000 MT.
Coffee prices also soared, with September arabica coffee up +7.78% and September robusta coffee up +4.47%, both reaching 4.5-month highs. Heavy rains in Brazil, specifically 31.3 mm in Minas Gerais in the week through June 28 (1,956% of the historical average), are delaying the country’s coffee harvest and raising concerns about crop quality. Furthermore, the US National Oceanic and Atmospheric Administration (NOAA) estimates a 67% probability of a "Super El Niño" this year, potentially the strongest on record. This El Niño weather pattern is expected to cause floods, droughts, and temperature fluctuations that could hinder coffee production in Asia and South America, and it may delay rains in Brazil during the crucial tree flowering period for the 2026/27 crop.
The combined impact of these weather phenomena and strategic shifts in agricultural production is tightening global supplies for both commodities. While some earlier forecasts, like the USDA's bi-annual report in December, projected a record high global sugar production for 2025/26, the current adverse conditions and market responses indicate a significant downturn. The International Sugar Organization (ISO) now forecasts a global sugar deficit of -262,000 MT for 2026/27, despite earlier predictions of a surplus. Similarly, although Rabobank raised its 2026/27 global arabica coffee surplus estimate to 9.5 million bags, the immediate supply concerns from Brazil's weather are driving current price hikes.
The ongoing heatwave in Europe is also raising concerns for the beet crop, particularly in France, Belgium, the Netherlands, and northwestern Germany, where severe production losses are anticipated due to dry soil conditions. This adds another layer of supply tightness for sugar, corroborating the bullish outlook for sugar prices. Overall, the convergence of below-average monsoons in India, significant cane diversion to ethanol in Brazil, and disruptive rains and El Niño concerns in coffee-producing regions are fueling fears of a supply crunch for both sugar and coffee on global markets.
