What are the future “turns” in the sugar market?

  • Dec, 26th 2018

The Zheng sugar 1905 contract has been operating in a wide range between 4850-5000 yuan/ton in the past month, lacking unilateral investment opportunities. This article will sort out the current fundamentals at home and abroad to judge the future price trend of white sugar.

What does the current price reflect

From an international perspective, the price of pre-international raw sugar has fallen sharply after a sharp rise. In Brazil, South Brazil's production in 2018/2019 was around 26.5 million tons, down 9.5 million tons year-on-year. In India, the latest estimates for Indian sugar production in 2018/2019 are 30 million tons, down from 32.5 million tons in the previous year and lower than the previous estimates of 32 million tons and 35 million tons. Since India's current inventory has reached 10.7 million tons, the Indian government has set a target of 5 million tons for the 2018/2019 sugar factory to reduce domestic inventories. If the output is completed according to the current year's output, then 2018/ At the end of 2019, Indian inventories were still above 10 million tons, and supply pressure was very obvious. In Thailand, sugar production in 2018/2019 is expected to fall to 13.3 million tons, down from 14.68 million tons in 2017/2018.

Brazil began to squeeze this month, but major sugar-producing countries such as India and Thailand have entered the peak of centralized crushing, and global trade flows will increase substantially. In the short term, these factors have not been fully digested, and raw sugar is hard to rise.

From the domestic point of view, the main reasons for the weak price in the early stage are: First, the market has strong expectations for direct subsidies. As the purchase price of domestic sugarcane in Guangxi is set at 490 yuan/ton this year, the cost of sugar factories is as high as 5600-5700 yuan/ About ton, the sugar factory suffered a serious loss, and the market appealed to the direct subsidy policy. Second, the market is rumored that China will have a reserve of 400,000 tons. Although the policy has not been confirmed, it still puts a lot of pressure on the market. Third, in the new year, Xinjiang and Inner Mongolia beet sugar were fully squeezed, and Guangxi sugar cane was gradually squeezed. The short-term domestic supply was sufficient and the price lacked upward momentum.

The picture shows the amount of sugar produced in China in a single month

What are the drivers of the future

Although the current price has more or less reflected the above information, it has not been fully digested. In terms of international supply, the northern hemisphere is the main sugar producing area, represented by China, India, Thailand, the European Union, Pakistan, Cuba, etc. The northern hemisphere has entered the peak of the crushing period and will continue until April next year; in terms of sugar consumption The global population is mainly concentrated in the northern hemisphere, so consumption is also concentrated in the northern hemisphere, and the supply of short-term major producing countries is sufficient to meet their own consumption needs.

The supply and demand in the northern hemisphere are not matched, and international sugar prices are still under pressure. Under the exclusion of major production countries such as India and Thailand, it is expected that international sugar prices will remain dominated by weak oscillations.

In terms of supply, in terms of supply, Xinjiang and Inner Mongolia beet sugar have been fully squeezed, providing a large impact on the market; Guangxi has already opened more than 70%, and fully opened in December, most sugar factories in Yunnan also opened in December. Squeeze, when the domestic comprehensive harvest in May 2019, domestic stocks will reach more than 4 million tons. In addition, the government asked the sugar factory to pay the farmers' sugar cane payment within one month, which put pressure on the sugar factory and the price was under pressure. On the demand side, after January, the country entered the traditional low season of consumption, during which domestic consumption will drop sharply, which further increases the pressure on the sugar factory.

Looking into the future, assuming that India, the EU and Thailand will not further reduce production, sugar prices at home and abroad will be weak, and investors can maintain a short-term idea to short the SR1905 contract at around 5,000 yuan/ton, with a target price of 4500. - 4,600 yuan / ton. From the short margin of safety, the bear market futures discount, the bull market futures premium is the basic characteristics of white sugar futures, the current SR1905 contract premium spot 200 yuan / ton, the short-selling risk is small.