Whalesbook
Government Continues Sugar Exports Despite Output Forecasts
India has no immediate plans to restrict sugar exports for the current season, even with projections indicating output may not exceed 28 million metric tons by September 2026. Government sources state that current supply levels are considered adequate. Stable domestic prices and softening demand from industrial and food service sectors are seen as offsetting factors for the lower production. India began the 2025-26 season with about 5 million tons in carryover stocks. Of the 1.59 million tons initially cleared for export, roughly 530,000-540,000 tons have been shipped, and over 800,000 tons are contracted, though new export deals have slowed recently. The season's final export volume is now expected to be around 7.5 to 8 lakh tonnes, well below the total quota.
Production Challenges and Rising Shipping Costs
Production challenges this season are linked to lower sugarcane yields in key growing areas. These domestic issues are worsened by higher shipping costs due to geopolitical tensions. The conflict involving Iran has caused significant volatility in maritime shipping, leading to surcharges and increased trucking fuel costs. This directly affects the economics of exporting agricultural products. Together, these factors have slowed new export deals, although existing contracts are still being processed.
El Niño Risks for Sugarcane Crops
Future supply outlooks face further uncertainty, as forecasts suggest a potential El Niño event could disrupt the upcoming monsoon season. El Niño is historically linked to hotter and drier conditions in India, posing a risk to sugarcane cultivation, a crop that requires substantial water. Reduced or erratic rainfall can stunt growth, lower juice content, and ultimately reduce harvestable tonnage. Although sugarcane is a relatively hardy crop, prolonged dry spells can significantly impact yields, potentially causing substantial production shortfalls the following season.
Global Market Context
India's policy decisions significantly impact the global sugar market, where it is the world's second-largest exporter after Brazil. Brazil is projected to harvest a strong crop of around 44-46 million tons in the 2025-26 season and is expected to prioritize sugar production over ethanol due to favorable international prices. Global sugar prices, which have seen some recent increases, were trading around 15.94 cents per pound in early May 2026, down about 14.53% year-on-year. While many forecasts predict a global surplus for 2025/26 due to strong output from major producers, concerns remain about Brazil's potential shift towards ethanol production and weather impacts in other key exporting countries.
Risks of Depleted Stocks and Potential Policy Reversal
Although the government states current supplies are adequate, allowing exports amid a domestic production deficit for the second year in a row carries risks. India's past sugar policies have shifted significantly, ranging from export subsidies and quotas to outright bans based on production levels. Continuing exports could deplete carryover stocks faster than expected, potentially causing domestic shortages and price increases in future seasons, especially if El Niño impacts crop yields. Additionally, higher logistics costs from geopolitical issues could make Indian exports less competitive. This challenges the strategy of maintaining export volumes when global prices are already pressured year-on-year. The government's position relies on a careful balance, and severe weather or rising shipping costs could force a policy reversal, prioritizing domestic needs as seen in the past.
Outlook for 2026-27 Season
For the 2026-27 marketing year, forecasts suggest India's sugar production could recover. Some projections indicate output will exceed domestic consumption for the first time in two years, helped by better monsoon rains and replenished groundwater. However, this optimism depends on favorable weather and the easing of current geopolitical supply chain disruptions. The market will be watching how the government balances immediate export decisions with these ongoing economic and climate uncertainties.