Bears in the Beet: How Crude Oil's Slide and Sugar Surpluses Spell Opportunity in Futures Markets

The confluence of falling crude oil prices and mounting global sugar surpluses has created a perfect storm for bearish momentum in sugar futures. With the USDA projecting a record 2025/26 surplus of 41.188 million metric tons (MMT) and crude oil's 4% decline spurring ethanol-to-sugar production shifts, the stage is set for aggressive short positions in sugar markets. Let's dissect the fundamentals and technicals driving this trend, while highlighting critical risk factors for traders.

Fundamental Analysis: The Bear Case for Sugar

1. Crude Oil's Slide Fuels Ethanol-to-Sugar Shifts

Crude oil prices have fallen 4% over the past month, weakening demand for ethanol—a key alternative fuel derived from sugarcane. Lower ethanol prices incentivize Brazilian mills to divert more sugarcane toward sugar production. For example, UNICA data shows Brazilian sugar output surged by 4.2% year-over-year in April 2025 as mills prioritized sugar over ethanol, exacerbating global supply. This dynamic could intensify if crude remains depressed, further amplifying the surplus.

2. USDA's Record Surplus Forecast: A Bear's Feast

The USDA's June 2025 report projects a 41.188 MMT surplus in 2025/26, driven by record output from India and Brazil:
- India's 25% Production Surge: Favorable monsoon rains (projected at 105% of the long-term average) and expanded sugarcane acreage are pushing Indian output to 35.3 MMT—a 25% jump from 2024/25's drought-plagued 28.0 MMT.
- Brazil's 2.3% Rise: Despite drought-related yield losses, Brazil's 2025/26 sugar output is expected to hit 44.7 MMT, bolstered by ethanol-to-sugar shifts and improved crushing efficiency.

Together, these two producers alone will account for 80% of the global surplus, creating a tidal wave of supply.

3. India's Monsoon and Export Policies: Double-Edged Swords

While India's above-average monsoon is bullish for production, its export policies could amplify volatility. The government has already approved 1.0 MMT of sugar exports for 2025/26—up from 2024/25's 800,000 MMT—but traders must monitor:
- Export execution risks: India's 2024/25 production fell to 26.4 MMT due to drought, leaving little buffer. A repeat of logistical bottlenecks or policy reversals could limit exports and temporarily tighten prices.
- Weather whiplash: A delayed monsoon or unexpected dry spells could slash yields, but current forecasts suggest minimal risk—a tailwind for bearish bets.

Technical Analysis: Oversold Conditions Signal Shorting Opportunities

NY Sugar (SB): 4-Year Lows Offer Entry Points

NY #11 Sugar futures have slumped to $0.12 per pound—the lowest since 2019, with the Relative Strength Index (RSI) dipping below 25, signaling extreme oversold conditions. Key resistance levels at $0.13 and $0.14 could cap rallies, while support at $0.115 offers a risk-reward sweet spot for short positions.

London White Sugar (W): 1.5-Year Lows with Bearish Momentum

London white sugar futures are trading at £450 per tonne—their lowest since early 2024, with a descending resistance line forming at £475. Traders can target shorts at current levels, with a stop-loss above £470 and a target of £430.

Investment Strategy: Short Sugar Futures with Risk Management

1. Short Positions to Take:
- ICE White Sugar (W): Enter at £450, target £430, stop-loss at £470.
- CME Sugar #11 (SB): Enter at $0.12, target $0.11, stop-loss at $0.13.

2. Risk Management:
- Weather monitoring: Track India's monsoon progression and Brazil's drought recovery via NOAA and CONAB reports.
- Crude oil price alerts: Set triggers at $75/bbl (CL) to adjust positions if ethanol demand rebounds.
- Position sizing: Allocate no more than 2% of capital to sugar shorts, given volatility.

Conclusion: Bearish Momentum, But Stay Vigilant

The confluence of crude oil's decline, record sugar surpluses, and technical oversold conditions creates a compelling case for shorting sugar futures. However, traders must remain alert to risks like weather disruptions or geopolitical supply shocks. As the USDA's surplus forecast becomes reality, the path of least resistance for prices is down—provided fundamentals hold. For now, the bears are in control.

Trade with discipline and let the fundamentals guide you.