The impact of Omilon continues to escalate, and the sugar market is difficult to say optimistic

In the long run, the possibility of the market maintaining a bullish pattern is still high, but under the influence of the new strain, Aomi Kerong, the possibility of the international crude oil market continuing to weaken cannot be ruled out, which in turn will trigger the process of change from quantitative to qualitative change in the sugar market.

The figure shows the Zheng Sugar Daily Index

The recent detection of a new variant strain in South Africa, Omicron, has attracted much attention because it is highly contagious and may even lead to secondary infections in people who have recovered from the new crown. On Friday, crude oil fell by 13% in a single day, which is a good example of the deterrent power of the new mutant strain in the panic mood.

WHO officials say little is known about the new variant so far, and more experimental data are needed to assess whether it is more contagious or more resistant to vaccines. Zhong Nanshan, an academician of the Chinese Academy of Engineering, said on November 27 that there is not much understanding of the mutated virus at present, but the virus carries a large number of mutations and poses more challenges to epidemic prevention work. It is the "lack of understanding" of the new strain that has led to a collective panic in the current market.

Another important reason for the plunge in crude oil is concerns that global oversupply could intensify in the first quarter of next year after major consumers, led by the United States, release crude oil reserves in concert. To address high domestic inflation, the United States last week planned to release tens of millions of barrels of oil from strategic reserves in coordination with other major consumers, including India and Japan. This obvious policy-oriented behavior eventually induced the international crude oil market price to start a downward rhythm. The decline in crude oil prices will inevitably lead to a synchronous dive in the price of fuel ethanol market, thereby dragging down the trend of white sugar.

Although the current focus of the market is on the epidemic, we believe that the impact of this year's La Niña phenomenon cannot be underestimated. The U.S. Oceanic Atmospheric Administration (NOAA) recently officially released a report that the second consecutive year of La Niña has arrived, will reach the peak of intensity by the end of 2021, and continue until the spring of 2022 and then gradually weaken. La Niña will continue to disrupt the supply side of the global sugar market, and from the perspective of the world's main producing regions, south-central Brazil will once again experience a dry crushing season. The data shows that by November, the sugarcane harvest progress in south-central Brazil has reached 97%, and the supply of sugarcane in Brazil is very limited. According to the current progress, sugar production in south-central Brazil in the 2021/2022 crushing season will eventually be in the range of 32 million to 33 million tons, which is much lower than the production of the previous crushing season.

The La Niña phenomenon will bring some precipitation to Southeast Asia, which will help alleviate the drought situation that has been fermenting in Thailand since the previous year. According to Thailand's official agency, production in the 2021/2022 crushing season has recovered to 9.5 million tonnes, an increase of nearly 2 million tonnes from the previous crushing season, which is bearish for the market and will offset some of the impact of Brazilian production cuts.

India's variables remain large. Although La Niña also has an impact on India's sugarcane producing areas, it is clearly not as influential as the Indian Ocean monsoon. However, the impact of the monsoon will have to be assessed until the time of India's traditional rainy season from June to August. In general, the strong southwest monsoon can cause flooding with heavy rainfall, while when the southwest monsoon is weak, it brings drought. According to institutional analysis, Indian sugar mills in the 2021/2022 crushing season may increase the total production capacity of fuel ethanol, and sugar production in the new crushing season may fall to 30.5 million tons. But the latest USDA report predicts that India's white sugar production will reach 34.5 million tons in the 2021/2022 crushing season, which is a full 4 million tons higher than the data given by India's domestic agencies. If the USDA forecasts are finally realized, there will be no significant gap in the global sugar market in the 2021/2022 crushing season, and the global sugar market may face a reversal.

At present, the international market is not simply a unified bullish view, some international institutions have increased the global sugar production in the 2021/2022 crushing season, although it is still believed that there is a supply gap in the new crushing season, but the gap estimate for this period is generally smaller than the previous estimate, ISO, Jialigao's latest report is the same. There are even reports that the global sugar market is oversupplied in the 2021/2022 crushing season, and according to the USDA report on November 22, the estimated global production of white sugar in the 2021/2022 crushing season is 181 million tons, while the global estimated consumption is only 175 million tons. Therefore, the recent global sugar market has entered the adjustment cycle, which is actually the result of the comprehensive action of various influencing factors in the market.

On the domestic side, we believe that the dual pressure of inventory and new sugar listing is still the main contradiction at present, and it will not be or difficult to alleviate in the short term, so it is difficult to be optimistic about the domestic sugar market in stages.

After discussing the above hot spots, we noticed that one of the important factors guiding the decline in domestic sugar prices is the reduction of international freight rates. The latest data show that the freight from Brazil to China has fallen to 46 US dollars / ton, and the average decline in the higher peak period is 20 US dollars / ton, which is equivalent to the import cost of 230-250 yuan per ton of sugar, which is consistent with the decline level of Zhengzhou in recent days. Of course, the impact of the new strains in South Africa in recent days is so large that the possibility of re-strengthening freight rates is not ruled out.

Overall, in the short term, the sugar market may still be under pressure, and the influence of the new strain is not accurately estimated for the time being, but according to the analysis of professionals, it should be seen after a two-week time span to see the final development trend of the new strain.

In the long run, the possibility of the market maintaining a bullish pattern is still high, but under the influence of the new strain Omilon, we cannot rule out the possibility that the international crude oil market will continue to deteriorate, which will trigger the process of the sugar market from quantitative to qualitative change. (Author Affilications:Mainland Futures)

This article originated from Futures Daily