Over the past decade and a half of sugar market analysis, the core questions have shifted toward the decoupling of domestic and international pricing, the impact of corn-based ethanol, and the contraction of growing areas in the EU and Thailand. The updated framework requires expanding the tracking dimensions from a single sugar price variable to roughly seven or eight parallel indicators, including oil prices, ethanol demand, the sugar-to-ethanol ratio, national blending legislation, corn ethanol capacity, election cycles, and cassava substitution returns.

The most significant structural change in the domestic sugar market is the marked decline in external dependence. Domestic sugar output has risen from around 10 million tonnes several years ago to the current 13.5 to 14 million tonnes, with further upside potential remaining. Import reliance has consequently dropped from over 30% to under 15%, and the production-consumption gap has narrowed to between 1 and 2.8 million tonnes. The within-quota import volume of 1.945 million tonnes, combined with approximately 1 million tonnes from syrup and pre-mixed powder, is now sufficient to cover the gap. Any additional out-of-quota import permits are redundant, whether for one tonne or one million tonnes. As external dependence has declined, Zhengzhou sugar futures have gradually developed independent pricing, with the correlation to overseas raw sugar becoming less apparent.

Thailand's capacity reduction path mirrors that of Guangxi. Without a large-scale ethanol industry to provide a buffer, falling prices directly compress planting area. The Thai Cane and Sugar Board set the unified national cane base price for the 2025/26 crushing season at the end of November 2025, benchmarked at 890 baht per tonne based on a commercial cane sugar percentage of 10%, with a floating standard of 53.40 baht per CCS point. Most mills also pay an additional subsidy of 40 baht per tonne to growers in pricing zones one, three, six, and nine. This base price represents a reduction of 270 baht, or 23.28%, from the previous season's 1,160 baht, marking the second consecutive annual decline and a cumulative 37.32% drop from the peak of 1,420 baht per tonne in the 2023/24 season.

During the same period, cassava field prices have remained stable at 2,500 to 2,800 baht per tonne. The yield differential driven by expanding starch export demand is visibly attracting northeastern sugarcane growers toward cassava cultivation. Thailand's smallholder farming structure means price declines transmit quickly to acreage. Consultancy Datagro projects that sugarcane planting area will shrink by 5% to 6% in the 2026/27 season, with crushing volume falling to approximately 86 million tonnes and sugar output potentially declining to between 10 and 10.3 million tonnes, down 1.7 to 2 million tonnes from the prior season. Additionally, the continued spread of white leaf disease in the northeastern main producing region and labor shortages caused by reduced cross-border workers from Cambodia and Myanmar are intensifying supply pressures.

European beet sugar contraction stems from both yield damage and crop switching, with the latter potentially driving consecutive annual acreage declines. The EU's 2026/27 beet sugar production estimate has been revised down from 15 to 16 million tonnes to 13.4 to 14.13 million tonnes, a year-on-year decline of 15% to 19%. In France's core growing regions, persistent heatwaves and drought have pushed soil moisture levels to ten-year lows. Beet yields are projected at 72.2 tonnes per hectare, down 11.5% year-on-year, with planting area contracting 9%. High temperatures are simultaneously suppressing root expansion and sugar content. More notably for the coming season, beet planting profitability now trails sunflowers and other oilseeds, prompting farmers to proactively switch crops, suggesting that acreage contraction may not be a single-year phenomenon.

Brazil's sugar-to-ethanol ratio is the most reversible elasticity variable in the global balance sheet. Each percentage point change in the south-central region's sugar production ratio corresponds to approximately 900,000 tonnes of white sugar supply. For the 2026/27 season, institutions estimate the sugar ratio will decline to between 46.1% and 48%, with sugar output landing between 38.7 and 40 million tonnes. The reason the global balance sheet can oscillate repeatedly between surplus and deficit lies not in total cane volume but in the allocation between sugar and ethanol.

The rapid expansion of corn ethanol is the most significant structural change to track on Brazil's ethanol side. Brazil's total ethanol output for the 2025/26 season reached approximately 37.5 billion liters, an all-time high, comprising 27.33 billion liters of cane ethanol, down 6.9% year-on-year, and 10.17 billion liters of corn ethanol, up a substantial 29.8% and representing over 27% of total production. In 2025, corn ethanol output was 9.4 billion liters, accounting for 24% of total ethanol production, projected to rise to 11 billion liters in 2026. Over a longer timeframe, Brazil's corn ethanol output has grown more than 60-fold in a decade, from just 140 million liters in 2015 to nearly 9.2 billion liters in 2026, currently representing close to 28% of total output. The number of corn ethanol plants has expanded from six in 2017 to 42 in 2025, with capacity of 16.1 billion liters.

The cost advantage is even more pronounced. According to Itau BBA estimates, the average production cost for cane ethanol in the 2025/26 season is 2.55 reais per liter, while corn ethanol costs approximately 1.79 reais per liter. By another measure, corn ethanol ranges from 1.8 to 1.9 reais per liter versus 2.4 reais for cane-based ethanol, giving the former a 25% to 30% cost advantage. Corn offers higher per-hectare yields and can be stored with year-round plant operation, whereas cane ethanol is concentrated in the April to November crushing season. The two are seasonally complementary rather than purely substitutive. Corn ethanol also produces the by-product DDGS for animal feed, with 2025 exports reaching 853,000 tonnes and China as the largest destination, further reducing the breakeven cost of ethanol. Additionally, climate fund loans and CBio credit subsidies under the RenovaBio policy continue to drive capacity development, resulting in a phase of ethanol oversupply in Brazil.

Petrobras price controls have severed the transmission channel from international oil prices to domestic ethanol. To suppress domestic inflation, Brazil's gasoline ex-refinery prices exhibit a clear one-way adjustment pattern, with rapid downward moves and sluggish upward moves, largely driven by government pressure. In 2026, international gasoline prices rose substantially while domestic Brazilian gasoline prices traded at a discount of up to 60% to global prices. This pushed gasoline import profit margins into negative territory for extended periods, approaching negative 100, and the ethanol-to-gasoline price ratio fell below the critical threshold of 0.7. The result is that the transmission chain from global gasoline prices to Brazilian ethanol and then to raw sugar is highly obstructed. Sugar mills base their sugar-versus-ethanol decisions not on the ICE screen but on domestically controlled, suppressed ethanol prices.

The assessment of Brazil's supply elasticity must incorporate a still-underappreciated variable: the repricing of sugarcane through its energy attributes. This year, disruptions in the Strait of Hormuz have created simultaneous shortages of crude oil and refined products, with most fuel-importing countries facing both surging import costs and currency depreciation. Under such pressure, using sugarcane and corn feedstocks to produce ethanol as a substitute for petrochemical fuels has transformed from an agricultural and climate issue into a policy tool for reducing oil dependence and stabilizing foreign exchange reserves.

India's E20 has become standard at fuel stations with E85 pilots underway, with plans to advance toward E25, diverting approximately 3.4 to 4 million tonnes of sugar equivalent to ethanol in the 2025/26 season. Brazil raised the anhydrous ethanol blending ratio in gasoline from 30% to 32% in August 2026, with an initial 180-day period extendable once, expected to absorb an additional 1.2 billion liters of anhydrous ethanol, while the Future Fuels Law institutionalizes ethanol blending and sustainable aviation fuel targets. In Southeast Asia, Indonesia implemented B50 in July 2026, Malaysia is transitioning from B10 to B15, Vietnam has moved up its E10 adoption, and Argentina now permits voluntary ethanol blending up to 15%. The US EPA has raised renewable fuel standards for 2026-2027 to historical highs and issued an emergency summer E15 waiver.

Meanwhile, Guangxi has experienced multiple typhoons and extreme rainfall events this year, but field tracking shows no material impact on sugarcane, particularly for plants at the elongation stage. Yield levels of up to eight tonnes per mu have been observed, largely validating our earlier characterization of sugarcane's robust growth traits. Sugarcane is fundamentally grass-like, with well-developed root systems and flood tolerance. This year's plant height has significantly exceeded expectations, and the ratoon nature of sugarcane means that even without replanting, substantial productivity can be maintained in subsequent years. This implies that national sugar output in 2027 will likely continue its linear growth trend toward approximately 14 million tonnes.

Generational shift in the research framework

Looking back over the past fifteen years, domestic sugar pricing has been supported by three underlying logics. The first is high correlation between domestic and international markets. The historical rigid gap of 4 to 5 million tonnes between domestic production and consumption required imports through quotas, syrup, and other channels, making domestic sugar prices approximately a mirror function of overseas supply and demand. The second is policy floor support, positioned to provide a safety net rather than ensure corporate profitability. When prices fall below production costs, policy can provide temporary support, but expecting policy to drive trend moves of 500 to 600 points has never had a solid foundation. The third is the transmission chain from crude oil through Brazilian fuel prices to sugar prices, with Brazil's cane-to-ethanol parity highly correlated with oil prices.

This year, all three underlying logics have simultaneously failed. The first failed fundamentally because of the rapid recovery in domestic sugar production. Guangxi has implemented the policy of returning eucalyptus land to sugarcane cultivation since 2023, accompanied by substantial planting subsidies, with area continuing to expand. New varieties such as Guitang 44, Guitang 42, and Guitang 05139 are highly sensitive to rainfall, with growth suppressed during drought and accelerated when moisture is abundant. This year, Guangxi experienced exceptionally abundant rainfall, with some areas like Liucheng achieving eight-tonne-per-mu yields and regional averages estimated at a relatively high five to six tonnes. In Yunnan, unconventional import pathways have been compressed, shifting to legal cane imports, with the form of supply transformed but the substance unchanged. As the gap narrowed from four to five hundred thousand tonnes to approximately one million tonnes, domestic price sensitivity to overseas markets systematically declined.

The marginal effectiveness of policy support is also diminishing. In April 2026, the market focused on the pace of import license issuance, but the reality is that approximately 13 million tonnes of domestic sugar, combined with 5 to 6 hundred thousand tonnes of syrup and 2 million tonnes of import quota, means license issuance does not constitute a trend driver. Syrup imports cannot be completely blocked, and licenses will continue to be issued. Overall, domestic supply-demand dynamics have shifted to balanced-to-loose, with policy's marginal push on prices trending downward.

The oil-to-sugar transmission chain through Brazil has been broken since the current Brazilian government took office. Petrobras ex-refinery prices adjust rapidly downward but sluggishly upward. When international oil prices surged, ex-refinery prices remained essentially unchanged, decoupling Brazilian gasoline and ethanol prices from international oil and instead depending on domestic ethanol supply-demand dynamics. The real driver of raw sugar in July was the arrival of El Nino.

The failure of these three layers has forced a framework reconstruction, with research focus needing to return to layered pricing on the supply side. Domestically, planting area is the most fundamental variable, with weather and yield, sugar accumulation, industrial inventories, import and syrup policies layered on top, and finally cross-validated against constant consumption assumptions. Overseas, two types of supply entities must be distinguished. The first is the single-leg model exemplified by Guangxi and Thailand, which lack large-scale ethanol industries as buffers, so price declines directly reduce acreage with thorough capacity reduction, but transmission requires a lead time across crushing seasons, making their impact on the global balance sheet more pulsed than trend-based. The second is the dual-leg model of Brazil and India, backed by massive ethanol industries, where the elasticity of acreage and sugar ratios determines global inflection points. One percentage point of sugar ratio movement corresponds to approximately 900,000 tonnes of sugar output, and a 2-3% swing is sufficient to reverse the mainstream projection of a 2-million-tonne surplus. The sugar ratio is currently the single most elastic variable.

Macro drivers: El Nino and weather cycles

The current El Nino is a typical eastern-Pacific type, with sea surface temperatures rising rapidly and falling equally fast. The peak temperature differential is projected at 2.5 to 2.7 degrees Celsius, placing it in the extreme-strength category. A commonly overlooked calibration issue exists here: the 30-year baseline used for calculating temperature differentials adjusts every five years, with the new baseline approximately 0.2 degrees Celsius lower than the previous cycle. When comparing against historical events, the impact of the baseline shift must be considered.

Agricultural commodities exhibit an approximately 4-5 year ENSO cycle. El Nino tends to first impact island-type crops such as palm oil and white sugar, serving as a launch signal for the new agricultural cycle, while La Nina phases typically produce more aggressive price highs. Historical samples are worth repeated reference. During 2014-2015, Indian monsoon rainfall declined 12% to 15%, sugar output fell from 25 million tonnes to 20 million tonnes, and raw sugar rose from 10 cents to 25 cents. In the 2023 El Nino year, India's production projection was 35.5 to 36 million tonnes, but actual output was only 30 to 31 million tonnes. The impact of El Nino on sugar typically manifests more significantly in the following year, with southern India facing further downside revision risks to new-season cane acreage and yields due to reservoir water level declines restricting irrigation.

Trading weather is meaningless when total cane supply is abundant; this is the fundamental discipline on the Brazil side. Only when acreage reduction and yield damage occur simultaneously does weather constitute a tradable driver. Current global acreage reductions are concentrated in Thailand and Europe, both free-market systems, while the policy-distorted acreage in Brazil and India has not declined. The extent of weather theme realization requires month-by-month verification.

Marginal changes in global supply

The global sugar supply structure is relatively stable, with approximately 80% derived from sugarcane concentrated in low-latitude regions near the equator and the remaining 20% from sugar beet. Brazil is the world's largest sugar producer with annual output of approximately 40 million tonnes, ranging between 36 and 43 million tonnes, with half of production exported and export volumes relatively stable. India produces approximately 30 to 35 million tonnes annually, but export volumes are extremely unstable, with high-production years exporting up to 10 million tonnes while low-production years see exports cease entirely. Europe and Ukraine together account for approximately 15 million tonnes, China produces about 10 to 13 million tonnes, and Thailand approximately 10 to 12 million tonnes. Global supply follows a structure of two interlocking crushing seasons across hemispheres, with the northern hemisphere season running from November to March and the southern from April to March of the following year. If northern hemisphere production, particularly India's, falls short of expectations, the global market faces a supply gap that must await southern hemisphere replenishment.

Brazil's actual tightness is less severe than the bullish narrative suggests. South-central region biweekly sugar output was down nearly 20% year-on-year at one point, with June down 26.3%, July down 11.8%, and early August down 7.9%. The greater-than-expected production decline combined with rainfall hampering crushing was the direct trigger for raw sugar's Q3 rally. However, production declines do not equate to inflection points. Brazilian sugar mills have been profitable for five consecutive years, with export returns of approximately 1,700-plus reais above cost lines, and ethanol prices only constitute losses when falling below 2,400 reais. With both sugar and ethanol prices profitable, mills have no incentive to reduce cane acreage or delay grower payments, and a significant portion of the cane is mill-owned assets. When total cane volume exceeds 600 million tonnes, sugar and ethanol do not compete for feedstock, and this year's abundant rainfall has boosted yields, with new-season cane potentially reaching 650 million tonnes. Early mill crushing starts suggest the supply interruption period may be far shorter than bullish expectations.

The sugar ratio is a more critical variable than acreage, and its direction depends on the profitability comparison between sugar and ethanol and the capacity ceilings of both ends. After several years of bull market, Brazil's sugar production capacity has expanded notably, with the sugar side possessing greater ability to absorb cane, leaving considerable room for the sugar ratio to swing toward sugar. One percentage point of movement corresponds to approximately 900,000 tonnes of sugar output, and a 2-3 percentage point swing can reverse the global balance sheet. The October election is the most important policy variable of the year. If the left wing continues in power, fuel prices will remain administratively suppressed, preventing ethanol from following international oil prices higher, and if oil prices fall, ethanol's decline would be even faster. If the right wing returns, fuel pricing would restore the adjustment mechanism linked to international oil prices. Until results become clear, the direction of oil-to-sugar transmission cannot be predicted.

Brazil's corn ethanol expansion constitutes a medium-term variable suppressing raw sugar upside. Corn ethanol output has grown from approximately 140 million liters in 2015/16 to approximately 9.2 billion liters in 2026, representing nearly 28% of total ethanol production. Its bare cost of approximately 1.8 to 1.9 reais per liter is significantly lower than cane ethanol's 2.4 level, with year-round production and by-product cost dilution, and continued subsidies through biofuel credits and climate fund loans mean the expansion phase is not yet complete. Capacity continues to move westward into the corn belt, but liquid bulk trucking distance limitations mean the main consumption regions still rely on cane ethanol. The current ethanol-to-gasoline price ratio is approximately 60%, below the normal range of 65% to 70%, indicating ethanol oversupply. Corn ethanol supports sugar prices during the narrative phase but suppresses ethanol prices during the implementation phase, constituting an implicit constraint on sugar price appreciation.

Brazil's fuel ethanol system comprises two distinct products with different functions. Anhydrous ethanol cannot be added directly to flex-fuel vehicle tanks; distributors blend it into gasoline A at government-mandated volume ratios, creating gasoline C sold at fuel stations, meaning ordinary gasoline always contains a significant proportion of domestically produced ethanol. Since August 2025, the mandatory anhydrous ethanol blending ratio in regular gasoline C has risen from 27% to 30%, with a temporary increase to 32% arranged in 2026, while premium gasoline maintains 25%. This mechanism creates inelastic demand for anhydrous ethanol and directly ties the sugar-versus-ethanol boundary of mills to policy ratios. Hydrous ethanol follows a different sales logic, sold separately as E100 fuel at stations primarily for direct use by flex-fuel vehicles. Consumers choose between hydrous ethanol and gasoline C based on the price ratio. When the per-kilometer cost ratio of hydrous ethanol to gasoline C falls below approximately 70%, drivers prefer hydrous ethanol; above that threshold, they return to gasoline C. Hydrous ethanol prices are thus more a market competition outcome, unlike anhydrous ethanol which is underpinned by blending mandates.

Since 2003, flex-fuel vehicles have become mainstream in Brazil, with stations offering gasoline C, diesel, and hydrous ethanol pumps simultaneously. Terminal demand fluctuates with prices, regional differences, and logistics conditions, with some states rarely selling hydrous ethanol due to tax burdens and distribution costs. From an industry boundary perspective, Brazilian ethanol is not a single commodity but a dual market defined by mandatory blending, free terminal pricing, and the existing flex-fuel vehicle fleet. Anhydrous ethanol obtains stable sales through CNPE and ANP blending rules, with distributors purchasing gasoline A from refiners and anhydrous ethanol from ethanol plants, blending before delivery to stations. Hydrous ethanol relies on consumer choices, with prices driven by the ethanol-to-gasoline ratio, state taxes, corn ethanol expansion, and sugarcane sugar ratios. The Future Fuels Law raises the anhydrous ethanol blending ceiling to 35%, and with corn ethanol capacity expanding from approximately 140 million liters a decade ago to over 25% share in 2025/26, the mandatory anhydrous base will continue absorbing feedstock that could otherwise go to sugar, while hydrous ethanol determines the depth of ethanol substitution for gasoline, jointly reshaping the opportunity cost of Brazilian sugar production.

India's tight-balance narrative credibility requires downward revision. New-season planting area is essentially flat, national monsoon rainfall is down 14.7%, and rainfall distribution in main producing regions is extremely uneven in both timing and geography. The market is trading yield loss expectations of approximately 5% to 8%, with total sugar including ethanol conversion declining from approximately 31 million tonnes to 28 to 29 million tonnes. However, three practical constraints weaken the magnitude of the decline. First, Maharashtra operates an 18-month cane cycle with approximately two-thirds of crushed cane being ratoon cane from the previous year's planting, which has strong drought resistance. Second, Uttar Pradesh has river irrigation conditions with relatively limited rainfall constraints. Third, sugarcane is a herbaceous plant with strong recovery capacity once rainfall resumes, making simple acreage-reduction extrapolations difficult to sustain in practice. As a supplementary calibration, Maharashtra's monsoon rainfall deviation is approximately negative 5% from the mean, superficially mild but with extreme temporal and spatial distribution. The real risk lies in 2027, as Maharashtra's irrigation depends on reservoir surface water, and current storage levels are low. If El Nino's lagged drought effects materialize next year, the emergence and elongation stages of newly planted cane would be suppressed.

India's policy certainty is stronger than Brazil's. The current government's term extends to 2029, with inflation control as the primary objective. After Mumbai wholesale sugar prices hit record highs equivalent to approximately 6,600 yuan per tonne, government statements regarding imports prompted the squeezing of hoarding premiums in distribution and terminal channels, with sugar prices rapidly retreating. The 1-million-tonne duty-free import was approved in August, but by September 12, actual imports totaled only a few thousand tonnes because current exchange rate conversions make imports unprofitable. The policy merely opens an import window; execution depends on corporate profitability. The export ban is expected to be extended through November 30, and by end-October India will determine the final arrangements for the 1-million-tonne raw sugar import. Ethanol diversion is a swing item in the balance sheet, with sugarcane ethanol accounting for only 28% in government auctions, and sugar mills' patience with ethanol expansion is wearing thin. Once sugar prices return to the cost line of approximately 4,100 to 4,200 rupees per tonne, mills would prefer to return to sugar production. After two consecutive years of low inventories, if new-season output is merely self-sufficient, that constitutes a tight balance for a populous country like India, representing the most promising line for raw sugar upside.

India's trade policy simultaneously constitutes the upper-bound interval valve for raw sugar. Export parity of approximately 21 to 22 cents forms the static anchor for the upper boundary. After releasing the 1-million-tonne import license in 2026, only a few thousand tonnes were actually purchased, proving that policy messaging aims to compress hoarding premiums in distribution and terminal channels rather than mandate state enterprise execution. If subsequent supply-demand is barely adequate or in deficit, the government may open additional windows, but enterprises will purchase based on profitability, with the exchange rate near 95 making landed costs high and limiting actual imports. During unclear policy phases, capital tends to preemptively bet on import volumes, but reality shows policy prioritizes price control, with raw sugar spikes vulnerable to hedging and reserve-release expectations.

Thailand and Europe are price-sensitive free markets. Thailand's cane procurement guidance price converts to less than 200 yuan per tonne, and with cassava attracting marginal farmland due to expanding starch export demand, planting area is showing a trend-based contraction, with the new season projected to reduce output by approximately 1.7 million tonnes. Thailand represents the single-leg model where price declines directly trigger acreage reduction, but transmission requires crossing crushing seasons, and its scale impacts the global balance sheet less than Brazil and India, making it more suitable as a pulse-theme rather than a unilateral trend axis. European beet acreage shifting toward oilseed crops such as rapeseed and sunflower is a trend that is difficult to reverse. In France, the core producing region, some beet land is switching crops due to higher oilseed comparative returns, giving acreage reduction continuity. Combined with summer heatwaves suppressing root expansion, both yields and sugar content are under pressure. The main aggregate, including Ukraine, places new-season output at approximately 14.3 million tonnes, down 3.2 million tonnes year-on-year, shifting the market from oversupply to a deficit of approximately 2 million tonnes requiring international procurement. EU beet sugar alone can be revised down to approximately 13.5 million tonnes. The persistence of European production declines means it will become a long-term theme for the sugar market.

Domestic pricing center shifting inward

Domestic sugar production is the primary variable for domestic pricing this year and next. Guangxi has implemented the policy of returning eucalyptus land to sugarcane since 2023 with substantial planting subsidies, and area continues to expand. New varieties such as Guitang 44, Guitang 42, and Guitang 05139 are highly rainfall-sensitive, with growth suppressed during drought and accelerated when moisture is abundant. This year, Guangxi has experienced exceptionally abundant rainfall, increasing the possibility of record yields. Sugarcane growth proceeds in stages: before mid-autumn is the height-growth period when more rain is beneficial, followed by the sugar accumulation period when less rain improves sugar content. The two stages are not contradictory. Flood damage to sugarcane is temporary, and its herbaceous nature determines rapid recovery. Survey data shows Liucheng experiencing local yields of eight tonnes per mu, which, while not typical, confirms the direction of technological progress. New-season domestic sugar production expectations are approximately 14 million tonnes.

The consumption side should be treated as a constant. Sugar consumption has strong stickiness, with domestic consumption stable at approximately 15.5 million tonnes over the past decade, and research recommends treating 15 million tonnes as the constant. Structurally, the civilian-to-industrial ratio has adjusted from 70:30 to 40:60. Large-scale bottled beverages have stable sugar usage due to formula adjustments, small and medium enterprises show shrinking sugar use, and customized cup beverages like milk tea have become the civilian growth source. Sugar-substitute alternatives have reached near saturation: high-fructose corn syrup at approximately 3,000 yuan per tonne has already completed substitutable conversions, while premium substitutes like sucralose cost 8,000 to 10,000 yuan per tonne, limiting substitution for high-priced white sugar by cost constraints. Sugar price increases have limited suppressive effects on overall demand. The quantitative verification window for consumption arrives in November this year, when distribution and terminal channels have essentially stopped hoarding, supply is almost entirely domestic sugar, inventories become highly visible, and industrial inventory data can directly verify baseline demand levels.

Ample inventories and import policies jointly suppress the upside for Zhengzhou sugar futures. Current industrial inventories sit at eight-year highs, with spot sales relatively loose and demand performance lackluster. The import management system comprises 1.95 million tonnes within-quota at 15% tariffs, 195,000 tonnes of out-of-quota licenses at 50% tariffs, with maximum theoretical annual imports of approximately 3.9 million tonnes. Syrup and non-conventional channels contribute approximately 800,000 to 1 million tonnes, and national reserves total approximately 6 million tonnes. At international sugar prices of approximately 20 cents, import costs translate to approximately 5,800 to 6,000 yuan per tonne, while domestic futures trade at only 5,300 to 5,400 yuan per tonne, with ample terminal supply suppressing prices. The current season's production-consumption gap is approximately 2.8 million tonnes, narrowing to approximately 1 million tonnes under the new season's 14-million-tonne domestic output expectation. If the gap narrows as expected, the domestic market converts to surplus once licenses are issued, and the balanced-to-loose supply-demand tone determines that Zhengzhou sugar's upside is limited.

Price transmission and domestic-international linkage

The pace of domestic sugar price changes is closely related to the timing of high-priced sugar imports. Bonded zones currently hold substantial inventories of low-priced raw sugar costing 12 to 14 cents. Until this inventory is digested, newly imported raw sugar will cost at least 17 to 18 cents. By convention, March is the month with the largest international sugar futures delivery volume and a critical period for global inventory drawdown. From approximately April to May 2027, new import sugar costs are expected to rise notably and transmit to the domestic market. If Brazil remains below 40 million tonnes in the 2026/27 season and India's production disappoints, international sugar prices have the potential to rise toward 25 to 26 cents.

The intensity of domestic-international linkage is determined by import costs. When raw sugar rises above 21 cents, within-quota import costs penetrate domestic production costs, and out-of-quota import costs cross domestic production costs from below, significantly strengthening the linkage between domestic and international prices. This mechanism can be referenced from the 2022/23 season when out-of-quota import costs continuously pushed domestic prices higher. Conversely, during gap-narrowing phases, linkage weakens. Currently, domestic sugar prices are following less than one-third of the international raw sugar rally, directly reflecting the narrowing gap and reduced import dependence.

Market rhythm and strategy recommendations

Raw sugar's upper boundary is anchored by India's export parity at approximately 21 to 22 cents, with static calculations based on current exchange rates suggesting actual resistance sits slightly below this level. The lower boundary is jointly determined by cost competition between Brazilian cane ethanol and corn ethanol. The historical price relationship of 18 to 20 cents for raw sugar with oil in the $80-90 range has been weakened by Brazil's fuel policy distortions, and the energy premium for sugar is limited under the ethanol oversupply environment. Current raw sugar, which started from 13.0 to 13.4 cents, has yet to reach even 20 cents, indicating a phase where both timing and price are not yet aligned.

On the timing dimension, Brazil's October election determines fuel pricing direction, India's October ethanol auction and import implementation determine the authenticity of the tight-balance narrative, and mid-September is the window for formulating condition-triggered trading plans. On the price dimension, raw sugar has risen from lows but lacks sufficient pullback. The 16-cent level has historically attracted speculative buying from Chinese refineries, but under the new season's 14-million-tonne domestic production expectation, buying willingness carries uncertainty.

Zhengzhou sugar's short-term trading range is 5,050 to 5,550, with 5,400 to 5,500 as strong resistance and breaking above 5,500 before December 2026 being difficult. The 5,400 to 5,500 range approaches sugar mill cane procurement cost lines, forming support, and the probability of breaking below cost support and declining substantially is low. In the medium term, from Q2 2027, the pricing logic switches. After bonded-zone low-priced raw sugar inventories are drained, high-cost new import sugar becomes visible, combined with international production declines materializing, Zhengzhou sugar has the potential to recover toward the 6,000 to 6,500 range, with May to July 2027 potentially testing 6,300 to 6,500. Drivers for prices substantially exceeding 6,500 are currently unclear; if India's production falls to the 25-million-tonne level or Guangxi weather materially deteriorates, the upside space would need reassessment.

Key timing points: October is the verification month for Brazil's election and India's policies. November through February is the northern hemisphere crushing season, focusing on whether India, Thailand, and EU production data complete the conversion from strong expectations to strong reality. November domestic industrial inventory data verifies baseline consumption demand. Around March 2027, focus on international inventory drawdown and bonded-zone low-price inventory clearance progress. April to May 2027, observe the transmission realization of new sugar import costs.

The raw sugar strategy centers on buying dips after pullbacks, with entry conditions requiring prices to fall to levels with adequate safety margins and the two time variables of Brazil's election and India's auction to be resolved. Domestic-international positive spread arbitrage is the core structure: under the divergence of domestic balanced-to-loose versus global tightening, the domestic-international price differential is expected to expand from negative 800 to negative 1,500 to negative 2,000 range. Zhengzhou sugar should be traded on a range basis with clear boundaries, single-wave targets of 70 to 100 points, with frequent trades and frequent stops. Volatility strategies should execute option double-selling after pulse moves to harvest volatility decline.

Risks: do not bet on the oil-to-sugar transmission direction before Brazil's election results are confirmed; during northern hemisphere crushing, the win rate for trading supply gaps declines, so avoid chasing raw sugar longs during that phase.