The futures sugar market in NY closed the week at a low for October/2014 again, which closed Friday quoted at 15 cents per pound, a level not even the most pessimistic trader could have foreseen six months ago, for example. The funds continue to do as they please when it comes to their short positions and were not afraid to add more sales to them during the week. In the accumulated of the year, sugar, which closed 2013 being traded at 16.41 cents per pound, has already lost 8.6%.
The melting of the October/March spread shows how much the market does not want Thai sugar, which should be the great deliverer of the product against October/2014 at the end of this month. On the other hand, the situation of the Brazilian sugarcane harvest, which should close at a volume of about 555 million tons, turns on a yellow light on the availability of sugarcane for next year considering that investments and expansion should be negligible.
In early June, the open position for July represented back then 37% of the total position. Based on this parameter, the position today for October/2014 should be 330,000 lots and is at 400,000 – 70,000 lots over. A great deal of this surplus is from mills which are still to fix their positions against October/2014. On the other hand, taking into account what has already been fixed (see below), we believe that there are still one million tons to be fixed or about to be rolled into March/2015. We are facing some hard times!!!
The National Petroleum Agency has released the oil consumption for July – 3.65 billion liters of gasoline C, which has anhydrous blended in it, and 1.01 billion liters of hydrous. In the accumulated over twelve months, from August 2013 to July 2014, the total consumption came to 54.98 billion liters – 11.84 billion of hydrous, 10.78 billion liters of anhydrous and 32.36 billion liters of gasoline A (before the blending).
In one year, the national consumption increased by 8.70% against the same period last year, that is, 4.4 billion liters, 90.6% of ethanol. At this fast pace of growth, which shows the national consumption increasing by 6.19% a year on average over the past five years, and if this trend continues, for the 2015/2016 harvest, Brazil will need at least more than 24 million tons of sugarcane just to meet this consumption. The variety of fuel consumed keeps the percentage at 41.1% for ethanol and 58.9% for gas.
Had we kept the favorable conditions of 2009 when ethanol accounted for 54.5% of all the fuel consumed by the national fleet (Ciclo Otto), the Central-South would be crushing, according to a study by Archer Consulting at the time, 720 million tons of sugarcane. For this to happen, we would have more than 30 new mills, investments close to 30 million dollars and a generation of more than 100,000 new direct and indirect new jobs. Add the investments, which did not come, to the ethanol, which we did not sell on the internal market, and we reach 50 billion dollars.
We haven’t come even close to that. The sector has shrunk at least 20% over the past years, be it because several industrial units have closed down, be it because of the lack of investments suppressed by the lack of energy policy, lack of long-term planning and by the lack of shame in PT’s government, mostly made up of people who are technically unqualified and without any commitment to the country’s future. Brazil is paying too heavy a price for twelve years of arrogance and fraud.
Marina’s government plan, should she get elected, has gotten a great number of leaders in the sector enthused. So much so that the two big sugar companies have donated R$2.75 million to her campaign, according to the Transparência Brasil site. After all, hearing that the candidate advocates the minimum government intervention in the sector and the transparency of the rules for the development of bio-mass energy is music to one’s ear. I have spoken about these issues for years pointing out that the lack of transparency in fuel pricing has pushed away new investments in the sector.
We should remember that the sector has kept a channel of communication open with Marina since 2010, when Marcos Jank brought the then candidate to the Ethanol Summit. It did not make any sense for a sector whose DNA is renewable energy and environment not to get close to a global personality like her in this area.
Last week, Representative Roberto Freire, PPS (Socialist People’s Party) president and one of the organizers of the coalition of Campos/Marina, impressed a group of fund managers attending a private event sponsored by a financial institution. Those who support Marina are fully aware that the model applied by PT, that is, unbridled consumption with low investment, has worn out. Besides, there is a clear realization that there is an urgent need for structural reforms.
Eventually supporting Marina, assuming Aécio won’t make it through the first round of the presidential election, just to pull out once and for all a government that is mediocre, populist, sly, deceiving, overbearing, reactionary in addition to being totally incompetent and that has destroyed the ethical and moral values of Brazilian society confirms XIX century American poet, writer and ambassador James Russel Lowell’s maxim that “only those who are idiots or dead do not change their minds”. If he were alive and knew Brazilian politics, Lowell would certainly include a corollary adding the word “PT-related” to his famous saying.
The model developed by Archer Consulting shows that 82% of the 2014/2015 harvest is already fixed at an average price of 17.58 cents per pound, which corresponds to about R$40.19 per pound. The average dollar obtained by the mills during this harvest was 2.2864.
Archer has started registrations for the 22nd Intensive Course on Futures, Options and Derivatives, which will be held on September 23, 24 and 25 in São Paulo. For further information, log on to our site www.archerconsulting.com.br
Have a nice weekend.
Arnaldo Luiz Corrêa
