Explanation of the Fuse – A Reasonable "More Than Expected Reduction"
There are three reasons behind the 56% bi-weekly production cut:
1. The price of absolute ethanol continues to overtake, the price of aqueous ethanol exceeds the price of sugar, and the willingness of sugar mills to make alcohol is stronger, resulting in a downward adjustment of the sugar ratio exceeding expectations, which also means a decline in sugar production;
2. The early crushing process is accelerated, the amount of sugarcane left in the later period is insufficient, the truth of the production reduction is about to surface, and the reason for the super production reduction is the delay in cashing after the data "year-on-year" error;
3. Rainfall has affected the recent crushing process, further increasing the reduction in production.
Source: UNICA, CFC Agricultural Products Research Collation
Source: CEPEA, UNICA, WIND, CFC Agricultural Research Collation
Although Zheng Sugar has reached a new high, after a 4-year de-capacity cycle in the global sugar market, we still believe that the 6000 line is only the beginning of this bullish battle, but the real drive of the inner and outer disks still needs time and data to cash in the upper space, for three reasons:
1, the main driving force from the external disk to follow the rise, UNICA's biweekly report is only a mood boost, and the real benefit of the global sugar market is that there is an expectation of replenishment demand in countries in the new crushing season, superimposed on the main producer Brazil is expected to continue to fall into the sugarcane harvest failure year, the global is expected to maintain the structure of insufficient supply and demand, continue to create a bullish atmosphere for the sugar market;
2. This biweekly report may be the last round of surprises brought to the market by Brazil in the 21/22 crushing season, and the pricing power in the later period is still in the hands of India, and India, which is not willing to sell, is expected to push sugar prices upwards, making it fall into a flat price range with a shift of gravity;
3, high inventory and unsanswered imports, so that the sugar market into a dilemma, but the real horn is still waiting for a "significantly reduced import data" to significantly cash in the import profit upside down.
The gap between supply and demand sets the tone for bulls, and weak demand is only a short-term dilemma
Source: WIND, CFC Agricultural Products Research Collation
With high freight rates and high sugar prices, countries prefer to consume their own inventories locally rather than rely on imports, and the decline in Brazil's export data in recent months can also clearly confirm the sluggish demand for export trade - Brazil's export volume has been reduced by more than 20% year-on-year since July. But because of this, all major consumer countries are expected to start the new year with low sugar stocks, which means that next year, as transportation conditions improve, there is a need for replenishment in all countries, so the agency expects global sugar demand to increase by 1.7%-2% in 21/22.
On the supply side, due to the impact of drought and frost, Brazilian sugarcane was congenitally insufficient, referring to the frost experienced by Brazil in the 2011/22 crushing season, when sugarcane production decreased by 12.5% year-on-year, sugar production fell from 38.35 million tons to 36.15 million tons, and sugar production was only restored to the previous level in the 13/14 quarter; so in the 22/23 years, Brazil still fell into a sugarcane failure year. In addition, the main producers of "La Niña" India and Thailand are also expected to reduce sugar production.
Source: WIND, ISO, USDA, ISMA, CFC Agricultural Research Collation
Brazil's production cuts have materialized, and when demand recovers will be an important time node to drive further increases in raw sugar prices.
India Home,
Raw sugar prices shift the center of gravity upwards into flattened price ranges
Pricing power remains in India's hands, and raw sugar shifts its center of gravity upward into flattened price ranges
India's 21/22 opening remarks are:
1) Uncertainty of production under la Niña phenomenon
2) The new year begins with low inventories
3) India's elimination of export subsidies has led to an increase in export costs,
4) Rising sugarcane purchase prices have led to rising sugar production costs
5) Ethanol production capacity is expanding
Source: ISMA, WIND, CFC Agricultural Research Collation
Source: ISMA, CFC Agricultural Products Research Collation
India is expected to start the new year with a low inventory of about 8 million tons, in addition to the existence of production cuts, coupled with the current good domestic sales in India, the government has no export subsidies, which means that the cost of exports rises, if you want to stimulate Indian exports, you need higher raw sugar prices.
Under this pricing logic, the price of raw sugar should fluctuate between 18 and 22 cents per pound before December
Bottom of flattened price ranges: A global supply-demand gap is still expected in 21/22, supporting sugar prices at 18 cents/lb.
The top of the flattened price range: India's domestic sales are good, the highest spot price is nearly 22 cents / lb, if you want to stimulate Indian exports, raw sugar prices need to continue to rise, but when close to the position of 22 cents / lb, will open India's export valve, supply to increase sugar prices under pressure.
Zheng Sugar: Waiting for opportunities on days when there is no connection
The fourth quarter is in the new and old crushing season at the turn of the time, the supply is often green and yellow, sugar prices often have a significant rise, superimposed in July this year began to appear import costs continue to invert the phenomenon, the highest cost has been more than 6500 yuan / ton, but the futures price has not been able to usher in the increase we expected, the main reason is that this year's high inventory and high import volume, so Zheng Sugar into trouble; so when can we clearly cash in the price of sugar costs rose sharply?
Source: WIND, MuTian Technology, CFC Agricultural Products Research Collation
By reviewing the story of the 16/17 year profit inversion, we can speculate on the rhythm of the bullish cashing out:
1. The cashing in the inversion of import profits is not achieved overnight, and it needs to go through consolidation
2. Looking for price-driven nodes from the rhythm of import volume, it is inseparable from the actual data support
Source: WIND, CFC Agricultural Research Whole
The journey of cashing in on profits upside down, consolidation is a necessary journey
The inversion of import profits appeared sporadically in May 2016, and began to appear frequently in June and continued into November; Zheng Sugar entered an upward channel as soon as the upside-down news came out, and reached the 7200 position at the end of November 2017, and from June 1, the half-year increase reached 29%.
This increase was not a one-time surge, during which it experienced two rounds of consolidation, one occurring in the second month of the inverted (from the end of July to the end of September 2016) and the other occurring from the beginning of October to the end of November 2016, both of which lasted for about two months.
At the end of November 2016, with the news that "the import volume of sugar in October was only 110,000 tons, down nearly 70% year-on-year", the impact of import inversion on import volume was finally reflected in the import volume, and the price of Zheng sugar soared all the way to 7200.
Therefore, by reviewing the inversion time of import profits in 16/17 years, we can get that although the inversion of import profits is an established fact, the obvious cash needs to be driven by actual data, such as a sharp reduction in import volume, a supply and demand structure that exceeds supply and demand.
Drawing on the process of cashing out the bullishness in the 16/17 year, we can speculate on two time nodes that may drive sugar prices upwards:
1. The data on the sharp decline in import volume in the fourth quarter was announced
2. The "oversupply" of 20/21 has once again turned to the "short supply" of 21/22
Drive 1: Reduction in imports
The phenomenon of inversion of import profits in this year was reflected in the second quarter, and the real inversion began to appear more obvious inverted from July 2021, after the inversion phenomenon was maintained for nearly 1 month, Zheng Sugar's center of gravity began to move up as a whole, from 5400-5600 to 5600-600; but because the import volume was the same as 16/17 years, there was no significant decline, and the accumulation consolidation began in mid-August, if you take history as a mirror, Zheng Sugar is waiting for a "significant reduction in import data year-on-year" The preliminary judgment is that this data is expected to come in the fourth quarter, which will drive Zheng Sugar upwards.
Source: Ministry of Rural Agriculture, CFC Agricultural Products Research Collation
Drive two: Inventory pressure released by the reduction of sugar beet production
The fundamentals of the 16/17 annual import profit inversion are -- "oversupply" to "short supply", and the current expectation will also reproduce this scene, but the time lags behind the last time, but the logic driving Zheng Sugar upward is that the inventory pressure is released, applied to the upcoming 21/22 squeezing season, although this year's carry-over inventory is more, but due to the reduction of beet sugar in the north, the supply and inventory pressure will be gradually released, and it is also the time when the price difference between Zheng Sugar and outside converges.
Source: Ministry of Agriculture and Rural Affairs, CFC Agricultural Products Research Collation
In terms of contract selection, inventory pressure is the main reason why the fundamentals of this year are weaker than that of 16/17 years, high inventory will lead to the simultaneous trading of old sugar and new sugar, 01 contract will be affected, and the far month contract is backed by the "oversupply" to "short supply" bullish fundamentals, import volume is expected to plummet in the fourth quarter, beet sugar production is reduced, will have a better chance to cash in the import profit upside down.
Cotton and sugar are often seen as the tail of a commodity bull market, and from a cyclical perspective, sugar is well-founded
For example, sugar imports in September were 870,000 tons, an increase of 61% year-on-year, but after the release of the data, the market acceptance was higher, Zheng Sugar still maintained a range fluctuation trend, there was no sharp correction, and the bullish data of the Brazilian biweekly report also responded positively.
So everything is ready, waiting for Zheng Sugar's dream to wake up.
The above content comes from CITIC Construction Investment Futures Micro Information, the original author Wu Xinyang (Futures Investment Consulting Certificate Number: Z0015926) the information in the notice is derived from publicly available information, CITIC Construction Investment Futures strives to be accurate and reliable, but does not make any guarantee for the accuracy and completeness of these information, according to this investment, the responsibility is borne by yourself. This report does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation or needs of individual clients. Clients should consider whether any comments or recommendations in this report are consistent with their particular situation.
To be continued....
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