The sugar market in NY closed the week at an 18 to 27-point fall due to the steeper devaluation of the real in relation to the dollar. March/2015 closed Friday at 16.38 cents per pound. There was little activity on the physical market (about 200 thousand tons, among which businesses for October at a 110-point discount) because of the paralysis that came over everybody on account of an enormous political polarization never seen in the recent history of the country. All this has at least brought about something good in a society which mainly and obstinately used to discuss soccer and soap operas. Today there are strained families and friendships that are being ended because of political preferences.
The value traded at FOB places equivalent sugar at approximately 860 reais per ton. It is too high for the mills and still a little better than hydrous.
The numbers on the accumulated crushing total up until the second half of October released by UNICA show 480.8 million tons of crushed sugarcane. Over the last six harvests in the Center-South, the first half of October represented between 75% and 88% of the total volume at the end of each harvest. Eliminating the extreme values, we would have 80%, which would place this harvest at 600 million tons – no way!! The consensus is around 550-560 million tons with the perception that several mills will stop crushing earlier than expected. It will be an unusual harvest. What about next year? Some numbers are starting to pop up – from 550 to 570 million tons.
This Sunday, Brazil will choose its new president, who will run the country for the next 4 years. The election campaign comes to its end with a serious accusation made by money changer Alberto Yussef, who is jail at the Federal Police in Curitiba, and published in VEJA magazine, which will be at the newsstand this Friday. He states in his plea bargaining suit about the corruption scheme involving Petrobras that both Dilma and Lula knew all about it. It is too early to reason how all this will play out. The fact is that 2015 will be politically tumultuous regardless of who wins the tightest election race ever in the young democratic Brazilian history. Should the accusations prove to be true, it could trigger an explosive impeachment process if Dilma gets reelected. We will miss 2014.
The impact of Dilma’s eventual reelection on the sector is still unknown, but it is in good taste not to feel too enthusiastic about what she can do in a second term. If she hasn’t done anything in four years, she certainly won’t do anything in another four. The most worrying thing is the apprehension that the foreign market can have with another four years of government under PT. Dilma, in one of her meaningless speeches, stated that in order to bring inflation down to 3%, she would have to increase interest rates by 15% a year. That’s such nonsense but it can drive away possible resource entry at this moment. That is, for a sector which desperately seeks money abroad in order to pay off commitments and services on a debt of over R$60 billion, Dilma as president again is a punch in the stomach.
Some eventual political unrest (if there is an impeachment) can scare new capital away and raise Brazil’s country risk. Some economists bet on a dollar over R$2.600 by the end of the year. The oil foreign market at a low, a 12.6%-fall this month, eases up the distortion there was between foreign price and pump price, so an eventual increase in gas price after the election could be discarded – unless ex-minister-in-office Guido Mantega decides to start pleasing the sector. An eventual escalation of the exchange rate at levels projected by fearful economists can pressure the sugar in NY down to 15 cents per FOB Santos pound.
Aécio’s win, on the other hand, would bring a wave of investments which are ready to get here. Several financial foreign institutions would have huge amounts of resources ready to be invested in the country, especially with Armínio Fraga heading the economy. Brazil can take a turn for the better and speed up growth, even though Aécio, if elected, will come into a “cursed inheritance” from Dilma, which PT has always made it a point of saying it inherited from FHC, a demonstration of lack of recognition and character for someone who got a country at a 900% inflation rate and brought it down to 12%.
If Aécio does get elected, the odds are that the dollar will go back to 2.2000. For the sector, however, due to oil at 80 dollars a barrel, and at the lowest import price in reais, this puts NY only at one cent per pound over due to the ethanol arbitrage and the pressure of the start of a more predominantly ethanol harvest which we will have in 2015/2016.
If Aécio is elected president, I will drink a bottle of Blue Label by the bottleneck. If he isn’t, I will turn to Bromazepam. Life is not easy. As Churchil once said, “Democracy is the worst imaginable form of government, but there is nothing better.”
Good election everybody – respecting citizenship and democracy!
Arnaldo Luiz Corrêa
