Why are World Sugar Futures Stuck in Neutral?
Why are World Sugar Futures Stuck in Neutral?.
Sugar is a critical food ingredient that countries subsidize to ensure adequate supplies. Brazil is the world's leading sugarcane producer, and sugarcane is also the primary ingredient in Brazilian ethanol. Therefore, sugar is food and fuel, and can be highly sensitive to crude oil and gasoline prices.
I asked if the world sugar futures' price action was weak, considering the action in crude oil and gasoline futures in a May 26, 2026, Barchart article. I concluded with the following:
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Commodity cyclicality suggests that prices fall to levels where production declines, inventories drop, and consumption increases, leading to price bottoms. Time will tell if sugar reached a cyclical low at 13.34 cents.
The risk-reward dynamics for a long world sugar futures position are attractive at 14.70 cents per pound. I continue to support buying sugar on price weakness, leaving room to add on weakness to the 13-cent support level to accumulate a long position.
Nearby ICE world sugar futures were trading at 14.70 per pound on May 22, and they were slightly higher on July 14. Sugar is stuck in neutral with bullish and bearish factors pulling the price in opposite directions.
Brazil produces significantly more sugarcane than second-place India, which produces over three times as much as third-place China.
While Russia leads the world in sugar beet production, it is a fraction of cane output.
In the U.S., corn-based ethanol is blended with gasoline to reduce emissions. In Brazil, South America's most populous country, sugarcane is the primary ingredient in ethanol production.
The MOU between the United States and Iran has fallen apart, with the U.S. attacking Iran and Iran retaliating against neighboring countries hosting U.S. military installations.
The Strait of Hormuz has become a focal point as Iran believes it provides powerful economic leverage against the U.S. The Iranians have declared they have closed the Strait, while the U.S. is once again blockading the critical passage through which around 20% of the world's crude oil flows. Moreover, the threat of attacks on oil production and refining in the Middle East is pushing prices higher from the recent low.
Sugar's role in ethanol production has made the price sensitive to crude oil and gasoline prices.
The quarterly chart shows that world free-market sugar futures have traded as high as 66 cents per pound in 1974, 44.80 cents per pound in 1980, 36.08 cents per pound in 2011, and 28.14 cents per pound in 2023. As an agricultural commodity, sugar futures have experienced periodic supply-driven price spikes. However, oversupply has driven prices to lows of 1.23 cents per pound in 1967, 2.63 cents per pound in 1985, 3.93 cents per pound in 1999, 8.50 cents per pound in 2007, and 9.21 cents per pound in 2020. While sugar futures have made lower long-term highs, they have made higher long-term lows.
World sugar price volatility has caused countries to subsidize production to ensure adequate supplies. The U.S. subsidy keeps prices well above the current price of 14.88 cents per pound.
The quarterly chart of U.S. subsidized sugar #16 futures shows that at 36 cents per pound, the price is currently more than double the free-market sugar price. Sugar #16 has traded at a significant premium to world sugar #11 prices since 2008.
The United States government first mandated blending ethanol into the domestic gasoline supply in August 2005. President George W. Bush signed the Energy Policy Act of 2005, which established the Renewable Fuel Standard program. Nearly 98% of the gasoline sold in the United States typically contains a 10% ethanol blend (E10). Recent federal legislation and actions have expanded the distribution of a higher 15% ethanol blend (E15).
The quarterly chart of Chicago ethanol swaps since 2007 shows that the price reached a low of 84.50 cents per gallon during the global pandemic, but has made higher lows over the past six years, and was around $1.9650 per gallon wholesale on June 14. While sugar futures are sensitive to crude oil and gasoline, ethanol prices also drive world sugar futures, as rising biofuel demand due to the hostilities in the Middle East has become a critical factor.
Several factors will determine the path of least resistance of world sugar futures over the coming days, weeks, and months. Sugar is a volatile soft commodity, but it is also the most liquid in the sector, with more daily trading volume and open interest, the total number of open long and short positions, compared to Arabica coffee, cocoa, cotton, and frozen concentrated orange juice futures.
