Sugar: Brazil Chooses Ethanol as India Opens Imports

Two of the world's dominant sugar producers are removing supply from the market for different reasons: Brazil's Centre-South mills have produced 10.7% less sugar from a larger crush as ethanol absorbed more cane, while India's crop has disappointed enough for the government to open a duty-free import window. Both sources of tightness have release valves — Brazilian mills can move cane back towards sugar, and India's nominal 1 million tonne quota may overstate actual arrivals — and raw sugar has already retreated around 7% from its 10 September high as managed money begins reducing a large long position.

TL;DR

Centre-South Brazil crushed 413.55 million tonnes of cane to the end of August, up 2.2% year on year, but sugar production fell 10.7% to 23.95 million tonnes as ethanol output rose 13.2%.
The season began with only 32.93% of cane allocated to sugar in the first half of April, against 44.71% a year earlier, when ethanol offered mills better returns.
India's government estimates 2025/26 sugar production at 30.6 million tonnes, against an initial 34.3 million, following crop disease and waterlogging.
India has allowed 1 million tonnes of duty-free raw sugar imports until 31 October, but deteriorating import economics mean the quota should not be treated as equivalent to physical arrivals.
Global balance estimates remain unusually wide: the ISO sees a deficit of about 0.2 million tonnes, while Green Pool's latest estimate is 3.24 million tonnes.
Managed money cut its New York net long by 13,254 contracts to +225,430 in the week to 15 September, combining long liquidation with new short selling.

Brazil Is Producing Less Sugar From More Cane

The central fact of Brazil's 2026/27 Centre-South season is unusual: more cane is being crushed, but considerably less sugar is being produced. Cumulative crush to the end of August reached 413.55 million tonnes, 2.2% above the same point last season, yet sugar output fell 10.7% to 23.95 million tonnes while total ethanol production increased 13.2% to 21.22 billion litres. The second half of August continued the pattern, with crush up 3.3%, sugar production down 4.8% and ethanol output up 3.5%.

This is principally an allocation story rather than a crop-failure story. When the season began, raw sugar was near five-year lows and ethanol offered mills better relative economics, so only 32.93% of cane went to sugar in the first half of April, against 44.71% a year earlier. That distinction matters because allocation can change. Raw sugar subsequently rallied from 13.74 cents a pound on 22 June to a high of 18.88 cents on 10 September, and if sugar now provides a better return than ethanol, mills can move the remaining cane back towards sugar and return supply to the market. The International Sugar Organization's relatively benign 2026/27 outlook explicitly relies on that response, assuming higher prices cause Brazil to favour sugar production heavily.

Brazilian fuel policy complicates the calculation, and not in a single direction. The mandatory anhydrous ethanol blend was raised from 30% to 32% from 1 August, supporting ethanol demand, and from 10 September the government reduced federal taxation on hydrous ethanol to zero until 9 October. But it simultaneously cut federal taxes on gasoline by R$0.63 a litre, which works in the opposite direction by keeping gasoline cheaper against ethanol at the pump. The market variable that matters is therefore not oil alone but the relative return from producing sugar or ethanol once fuel prices, taxes and mandated demand are taken into account — and part of that support is temporary.

There is also a data qualification this season. UNICA's usual public crush reporting has not continued at its normal fortnightly frequency, leaving the latest production figures to come from Brazil's agriculture ministry. The two datasets use slightly different historical bases, so they should not be mixed mechanically.

India's Shortfall Opens an Import Window

India has reached the same global market from the opposite direction. The government estimates 2025/26 sugar production at 30.6 million tonnes, substantially below its initial 34.3 million tonne expectation, and attributes the shortfall to red rot and top borer disease alongside waterlogging caused by excess rainfall. Domestic prices rose sharply enough for the government to permit 1 million tonnes of raw sugar to enter duty-free until 31 October, temporarily removing the normal 100% import duty — its first significant sugar import move in nearly a decade.

Allocation, however, is not the same as imports. Indian mills had applied for around 80% of the quota by 10 September, but domestic ex-mill prices have since fallen while international prices firmed, damaging the economics of bringing foreign sugar into India. The government subsequently extended the deadline for mills to surrender unused allocations to 30 September, explicitly reflecting that change in relative prices. The volume that ultimately reaches India could therefore be materially below the headline 1 million tonnes, and that matters for the global balance: a quota creates potential demand, whereas only actual shipments remove sugar from the world market.

India's shortage also differs fundamentally from Brazil's. The government says the share of sugar diverted into ethanol has fallen from 12% in 2022/23 to around 9% in 2025/26, with grain now providing most Indian ethanol feedstock. India's current problem is principally crop supply; Brazil's is principally cane allocation.

How Short Is the World Market?

There is no settled answer. The ISO's August outlook sees a 2026/27 deficit of only around 0.2 million tonnes and assumes higher prices induce Brazilian mills to shift substantially back towards sugar. Green Pool's latest forecast is a 3.24 million tonne deficit, revised from 3.34 million in late August, while StoneX sits between them at around 1.7 million tonnes.

The difference cannot be reduced to Brazil alone. Green Pool also carries different assumptions for India, Russia and Europe, and the EU Sugar Market Observatory expects EU production to fall sharply in 2026/27. The range itself is more useful than any single deficit number: Brazil's production mix remains unusually responsive to relative prices, India's import requirement remains uncertain, and major forecasters disagree materially about supply elsewhere. Brazilian sugar–ethanol parity is nonetheless one of the most important variables, because if the rally makes sugar sufficiently attractive to mills, part of the shortage created earlier in the season can reverse relatively quickly.

Funds Have Started Reducing the Bet

Managed money built aggressively into the rally, with New York net length rising from +198,017 contracts on 25 August to +233,771 on 1 September and +238,684 on 8 September. The week to 15 September produced a clearer change: net length fell 13,254 contracts to +225,430, with funds liquidating 10,397 longs while adding 2,857 shorts. That combination matters, because the reduction was not simply profit-taking by existing longs — new bearish positions were also being established. Price has turned with it, with the October ICE No.11 contract retreating from 18.88 cents on 10 September to around 17.5 cents by 21 September, a decline of roughly 7%.

That does not remove the physical tightness. Brazilian sugar production remains well below last year and India still has a domestic supply problem. But both have identifiable release mechanisms — Brazil can redirect cane towards sugar, and Indian imports can fall short of their nominal quota — and those are precisely the uncertainties that matter when a heavily long speculative market begins reducing exposure.

Outlook

Base case: Brazil remains materially behind last year's sugar production through the closing stages of the crush, but higher sugar prices encourage some late-season shift away from ethanol. India uses only part of its duty-free quota as import economics deteriorate, leaving the global market tight but less extreme than the most bullish deficit forecasts imply.

Upside risk: Brazilian ethanol economics remain attractive enough to prevent that switch, particularly if temporary hydrous tax relief is extended, while India's next crop disappoints and European production weakens further.

Downside risk: Brazilian mills move decisively back towards sugar while India surrenders a substantial portion of its import allocation. With managed money still carrying a large New York long, further liquidation could amplify the fundamental adjustment.

What would change the view: Brazilian parity data showing sugar clearly outpaying ethanol would signal that supply is about to return. On India, the volume of allocations surrendered by 30 September and actual arrivals before 31 October.

Key Risks

Brazil can change its production mix quickly. The sugar shortfall principally reflects allocation rather than a smaller cane crop.
India's quota may overstate demand. Actual imports matter more than allocated tonnes, with unused allocations eligible for surrender by 30 September.
Brazilian fuel policy cuts both ways and is partly temporary. Hydrous ethanol tax relief expires on 9 October unless extended, while the gasoline tax cut works against ethanol.
Global deficit estimates remain unusually dispersed. The ISO sees approximately 0.2 million tonnes; Green Pool sees 3.24 million.
Positioning remains large. New York managed money is still +225,430 contracts net long despite the latest reduction.

Intelligence Monitoring Points

Brazilian sugar–ethanol parity and the late-season production mix.
September Centre-South crush and sugar production.
India's surrendered quota by 30 September and physical arrivals before 31 October.
Brazil's hydrous ethanol tax relief, and whether it is extended beyond 9 October.
India's first 2026/27 crop estimates.
CFTC positioning, and whether new short creation continues.

FAQ

Why is Brazil producing less sugar despite crushing more cane? Mills allocated substantially more cane to ethanol when the season began because ethanol offered better relative returns. The key question is whether the subsequent sugar rally reverses that incentive.

Why does India need imports? The government estimates production at 30.6 million tonnes against an initial 34.3 million, citing disease and waterlogging. It responded by allowing 1 million tonnes of raw sugar to enter duty-free.

Will India import the full 1 million tonnes? That is increasingly uncertain. Domestic prices have fallen while international prices rose, weakening the import arbitrage, and mills can surrender unused allocations until 30 September.

How large is the global sugar deficit? Forecasts disagree materially. The ISO estimates roughly 0.2 million tonnes for 2026/27, while Green Pool sees 3.24 million, with different assumptions about Brazil, India, Europe and other producers explaining much of the range.

What are funds doing? Managed money reduced its New York net long by 13,254 contracts to +225,430 in the week to 15 September through both long liquidation and additional shorts.

Data and source note: Centre-South Brazil production figures use Brazil's Ministry of Agriculture data for 2026/27; the opening-season sugar mix uses UNICA. Indian production, crop-shortfall and ethanol-diversion figures use Government of India data, with quota developments supplemented by trade reporting. Global balance estimates use the ISO August Quarterly Market Outlook, Green Pool's 27 August revision and StoneX. Managed-money figures use the CFTC Disaggregated Commitments of Traders, Futures Only, with Bloodstone Research's contemporaneous weekly series for historical comparisons. Price references are to the ICE No.11 October 2026 contract, which expires on 30 September.

Sources

This document is published by Bloodstone Research for informational and institutional research purposes only. It does not constitute investment advice, an investment recommendation, an offer or solicitation to buy or sell any financial instrument, commodity or security, or a forecast of future performance. Market conditions and data may change without notice. Readers should conduct their own analysis and, where appropriate, seek independent professional advice before making investment decisions. For institutional enquiries contact research@bloodstonecapital.co.uk.

Sugar analysis — 2026-09-21