summary
Due to the gradual liberalization of the import policy, the current fluctuation direction of domestic and foreign sugar prices tends to be consistent, but the domestic volatility is smaller than the international sugar price. In addition, as corn prices are at a high level and the area of domestic sugar planting has declined, the reduction in domestic sugar production this season will also support the price of the far month.
The future of the world is in a static supply and demand balance pattern, and international sugar prices still have room to rise. Energy price volatility is expected to be a new breakthrough.
India's higher-than-expected production has suppressed global sugar prices, but the increase in ethanol production and large-scale sugar exports have been reducing and supporting the suppression of sugar prices.
The market continues to pay attention to the opening of the new crushing season in Brazil and has a huge impact on global supply in Q2.
body
01 Sugar trend review
Looking back at 2021, raw sugar continued to strengthen at the beginning of the year as brazil's drought affected sugar production, and at one point it broke through the 20 cents/pound mark. Market enthusiasm declined in Q2 due to the large-scale exploitation in Brazil. After the third quarter, India exported a large amount of sugar and raised the purchase price of sugarcane FRP, while the market rumors that India would raise the domestic minimum price MSP, and raw sugar re-strengthened. Entering the fourth quarter, crude oil price shocks and the opening of the northern hemisphere also made the market rush higher and fall.
Entering 2022, the pressure of the northern hemisphere to open the country has led to a continued correction in the global sugar market at the beginning of the first quarter. After the Russian-Ukrainian war in March, crude oil prices rose sharply, so that raw sugar finally got rid of the pullback trend, and prices are ready to go. The domestic price follows the fluctuation of raw sugar and fluctuates around 6,000 yuan / ton, and because the domestic supply pressure is greater than the international sugar, the domestic price fluctuation is less than the international sugar price.
02 In Brazil, the new crushing season is opened, and ethanol continues to be the focus
After April, south-central Brazil entered the new crushing season, and as of April 30, south-central Brazil had produced 1.066 million tons of sugar, a year-on-year decrease of 50.58%. The market is divided on production in south-central Brazil, ranging from 29-33 million tons. This depends mainly on the continuing effects of the previous year's drought, sugar yield and toner ratio.
In 2021, with the rise of crude oil and the appreciation of the real, the brazilian ethanol discount price will remain strong overall and is expected to continue to be a supporting factor for raw sugar prices in 2022.
Brazilian sugar mills are canceling some sugar export contracts and shifting to producing more ethanol to get higher yields at a time when energy prices are high. Industry insiders said at an industry conference that almost all sugar mills in Brazil have canceled sugar export contracts. It is estimated that as of now, the volume of raw sugar export contracts that have been cancelled is about 200,000-400,000 tons.
At the same time, since Brazil is in the early stages of extraction, in addition to the bi-weekly crushing data, it is also necessary to pay attention to the speed of Brazilian sugar and ethanol reservoirs. Once the speed of the depot is slow due to the impact of squeezing less than expected superimposed export consumption, the market will be very easy to speculate on this and make the raw sugar price break through the current volatility range.
03 Production and sales are booming, support from India
In the 21/22 crushing season, India experienced a situation of two booms in production and sales.
On the supply side, India produced 34.237 million mt as of April 30 (30.029 million mt in the same period last year), an increase of 4.208 million mt y/y. In the 2021/22 crushing season, after considering the use of 3.4 million tonnes of sugar for ethanol production, the Indian Sugar Association (ISMA) expects India's sugar production to reach 35 million tonnes in the 2021/22 crushing season (compared to an estimated 33 million tonnes previously on 15 March).
At the same time, as of May 5, India has signed an export contract for 8.2-8.3 million tons of sugar. Among them, the actual exports as of the end of April were about 6.8-7 million tons (4.319 million tons in the same period last year). ISMA expects sugar exports to exceed 9 million tonnes this season.
On the demand side, as the epidemic in South and Southeast Asia gradually becomes a thing of the past, India's local sugary food continues to recover, and domestic consumption is expected to recover to 27.2 million tons this year, much higher than the level of 26 million tons in previous years.
Thus, taking into account the opening stock of 8.2 million tons, the expected domestic consumption of 27.2 million tons, the expected export of more than 9 million tons, the expected production of sugar 35 million tons, the ending inventory is estimated at about 6.8 million tons. As a result, even if India's sugar production reaches record highs, ending stocks will still decline and support local and global sugar prices.
04 Production cuts and import inversions continue to support Zheng sugar prices
As of the end of April 2022, the total sugar production in the country during the sugar production period was 9.3505 million tons (10.5396 million tons of sugar was produced in the same period of the previous sugar production period). The cumulative sales of sugar nationwide was 4.4367 million tons (4.9557 million tons in the same period of the upper sugar production period), and the cumulative sugar sales rate was 47.45% (47.02% in the same period of the upper sugar production period). For now, sugar production is estimated at around 9.5 million tonnes this season, well below the 10.5 million tonnes estimated at the Sugar Association meeting in November. Under the production cut, the sales pressure of sugar mills has decreased, while the cost of tons of sugar has risen, which has helped domestic spot prices to rise.
At the same time, due to the sharp inversion of imports, the mainland imported 3.2 million tons of sugar in the 10-4 months of the 2021/22 crushing season, a decrease of 730,000 tons year-on-year. Domestic imports fell overall. Domestic sugar imports are also expected to fall by more than 1 million tonnes this season. Although the import volume of syrup has increased slightly, the double decline in the supply of domestic sugar + imported sugar will greatly improve the domestic supply and demand structure.
From the perspective of consumption, with the gradual easing of the epidemic situation in Shanghai, the unsealing of the later stage is expected to stimulate downstream replenishment. Sugar consumption throughout the year is expected to remain relatively rigid.
Finally, the current raw sugar prices are already at a relatively low price level compared to other agricultural products, which also means that the comparative planting yield of sugar is declining, especially for the annual sugar beet crop. At the same time, it will also show advantages in the downstream starch sugar and corn ethanol competition.
In summary, in the context of domestic production cuts and import inversion, domestic sugar prices will remain easy to rise and fall in the next few months. Especially in the late third quarter, domestic sugar spots are expected to be green and yellow. Historical spot is prone to warp tails, and even rise to the water far moon futures.
For investors, sugar 2209 can be bought every time there is a pullback, and the price reference range for the next 3 months is 5800-6500 yuan / ton.
This article originated from Shenyin Wanguo Futures