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Sugar futures in New York have pushed above 17 cents/lb, reaching a level that has capped the upside on two previous occasions during the past year. Nine successive sessions of gains - the longest winning streak since January 2021 - have lifted prices by around 18%, driven by mounting concerns about tightening global supplies.
The supply outlook is becoming increasingly supportive. European sugar production is expected to fall to a decade low, while El Niño-related weather risks threaten cane output in India and Thailand, two of the world's largest producers alongside Brazil. Any meaningful deterioration in Asian crops would leave the market increasingly dependent on Brazilian supply.
One caveat is the shifting economics between sugar and ethanol in Brazil. The recent rally has pushed sugar to a sizeable premium over ethanol, strengthening the incentive for Brazilian mills to maximise sugar production rather than divert cane toward biofuel. That flexibility could eventually provide a supply response and limit the upside if current price strength persists.
Positioning has added fuel to the rally. Just before prices accelerated last week, speculators had already cut their net short position in New York sugar futures by around 30% to 77,800 contracts. With the market subsequently breaking above its long-term downtrend and the 200-day moving average, further short covering appears to have contributed to the latest surge.
Attention now turns to the 17-cent area. A sustained break above this resistance zone would strengthen the technical picture further, while failure to hold the breakout could leave the market vulnerable to profit taking as the short covering squeeze fades, particularly if Brazil responds to the improved sugar-production economics.
Sugar breaking higher, partly driven by short covering from hedge funds - Source: Bloomberg & Saxo
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