For buyers, sugar is getting a lot less sweet.
Prices surged 21.5% in August, the strongest monthly gain since October 2010, when they rose 24%, according to data cited by CNBC. The United Nations’ Food and Agriculture Organization (FAO) reported that its food price index rose broadly in August, led by sugar, and attributed the surge to a mix of weather and policy developments across key producing regions.
As a result, sugar futures are now up about 20% year-to-date in 2026, outperforming the S&P 500’s roughly 13% advance over the same period.
What’s driving sugar higher
The rally reflects a shift in expectations about global supply, William Osnato, director of commodity data research and analysis at Barchart, told CNBC. One immediate factor: a summer heat wave that damaged Europe’s sugar-beet crop. Since sugar beets are grown in similar regions and seasons as corn and wheat, the extreme heat hit production hard.
“That’s been factored in over the last month. So a bunch of organizations lowered their production estimates,” Osnato said.
Those downward revisions are piling up. The European Commission’s latest balance sheet projects EU sugar production will fall 19%, to 13.4 million metric tons in the 2026/27 marketing year, from 16.6 million tons the previous year. Citi, in a Tuesday note, projected a world deficit of 1.3 million metric tons, while Green Pool Commodity Specialists estimated an even larger shortfall of 3.2 million metric tons. Osnato noted that while the numbers vary, the direction is consistent.
“What is usually consistent is that they’re all going in the same direction,” he said. “They’re all increasing the deficit.”
El Niño looms large
Looking ahead, Osnato called El Niño “the biggest forward-looking concern.” A potentially extreme event — the Climate Brink’s multi-model median forecast pegs the Niño 3.4 temperature anomaly near 3.9 degrees Celsius in November, well above the 2-degree threshold for a very strong El Niño — could intensify pressure on crops.
Brazil, India and Thailand together supply roughly 70% of global sugar exports. Goldman Sachs warned that drought during the growing season could cut cane yields, while excessive rain at harvest could disrupt fieldwork and reduce sugar content. India has already seen below-normal rainfall in key producing regions, and a weak monsoon can deplete reservoirs, discouraging farmers from planting water-intensive sugarcane for the next season. Warmer Pacific waters are also expected to bring erratic rainfall and water shortages across Thailand.
India, the world’s second-largest producer, recently authorized 1 million metric tons of duty-free raw-sugar imports, its first such move since the 2017-2018 season. The government said the decision aims to bolster domestic availability amid lower production, seasonal demand and rising prices. Osnato noted that even importing half the authorized amount would reinforce the view that supplies are tighter than previously thought.
Ethanol competition and Brazil’s key role
Higher energy prices are 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. With oil above $90 a barrel, Brazil — which accounts for about half of world sugar exports and heavily subsidizes its ethanol industry — is producing more biofuel, tightening sugar supplies and putting upward pressure on prices.
Goldman Sachs added that a weaker corn crop from El Niño-related drought could push more sugarcane into ethanol, as corn is also a key feedstock, leaving less sugar for export.
Rain has also delayed harvesting in Brazil, Osnato said, though some output could recover once fields dry. That rebound potential is one of the clearest downside risks to prices.
Still, the tight setup leaves little room for error. “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.
Source: www.cnbc.com — https://www.cnbc.com/2026/09/06/sugar-is-outperforming-the-stock-market-this-year-whats-driving-it.html
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