Sugar is outperforming the stock market this year. What’s driving it

Sugar is getting a lot less sweet for buyers.

Sugar prices surged 21.5% in August, marking its strongest monthly gain since October 2010, when it rose 24%. The United Nation’s Food and Agriculture Organization Food Price Index also rose in August amid broad-based increases, led by sugar.

“The surge reflected expectations of lower sugar beet yields in the European Union due to adverse weather, concerns over the impact of El Niño on production prospects in key producing countries in Asia, lower sugar production in Brazil, and India’s announcement of duty-free raw sugar imports,” the organization said in its recent report.

The August rally pushed sugar futures ahead of the S&P 500 on a year-to-date basis. The sweetener is now up about 20% in 2026, versus the nearly 13% advance for the broad market index.

The U.N.’s Food and Agriculture Organization points out that the sugar rally is tied to several factors, which are collectively pushing the prices in the market.

The sugar rally reflects a shift in expectations about global supply, according to William Osnato, Barchart director of commodity data research and analysis. Osnato told CNBC that the damage to Europe’s sugar-beet crop during a summer heat wave was one of the biggest immediate factors.

Sugar beets are grown in the same places and around the same time as corn and wheat, and so the heat wave can significantly affect sugar production.

“That’s been factored in over the last month. So a bunch of organizations lowered their production estimates,” Osnato said.

Different organizations have either slashed production estimates or increased deficit estimates in their recent reports. The European Commission’s latest sugar balance sheet estimates a decline in EU production of 19% to 13.4 million metric tons, in the 2026/27 marketing year, from 16.6 million tons in 2025/26. Citi projected a world deficit of 1.3 million metric tons in a Tuesday note, and Green Pool Commodity Specialists estimated 3.2 million metric tons.

“What is usually consistent is that they’re all going in the same direction,” Osnato said. “They’re all increasing the deficit.”

In the note, Citi analysts called sugar a “highest-conviction bullish” market among agricultural commodities traded on the Intercontinental Exchange. The bank raised its price target to 19 cents per pound over three months, citing tightening inventories, India’s unexpected import program and deteriorating weather in India, Thailand and the EU.

El Niño threatens upcoming harvests

Osnato said that El Niño, a global climate pattern that can bring warmer ocean temperatures and severe weather, is likely “the biggest forward-looking concern.”

A potentially extreme El Niño intensifies the pressure on sugar prices. 

Brazil, India and Thailand together account for approximately 70% of global sugar exports. Goldman Sachs said in a note that drought during the growing season could lower cane yields, while excessive rainfall during…