The Brazilian economy is sinking and the perspectives for the sugar-alcohol sector for next year continue to be dire. I don’t remember having lived through so big a crisis nor facing an environment as pessimistic as today’s ever since I started in this sector in 1994. Of course a lot of this feeling shared by everybody on the market stems from the perception that there is a total lack of command on Dilma’s part, who doesn’t seem to be able to make her lonely neurotransmitters make a simple synapse such as choosing the Economy Minister once and for all. So, due to the lack of trust from investors, the dollar has skyrocketed to 2.6300 (the lowest real quote since 2005) and the stock exchange has been pulled down by Petrobras.
Many mills which still had sugar contracts for export from this harvest to be fixed adequately took advantage of the appreciation of the dollar and fixed them. The more capitalized mills look at 2015/2016 and take advantage of the favorable exchange rates for export and make NDF contracts (non-deliverable forward) maturing by the first quarter of 2016. Let’s face it, what is the risk of fixing prices in NY equivalent to R$1,200 per ton when the cost of production of the topnotch mills is inferior to R$800 per ton? The last time the combination of dollar and futures market in NY presented R$1,200 per ton was in February 2011 with NY at 31.16 cents per pound and the exchange rate at 1.6675. We can’t miss out on this opportunity.
The futures sugar market in NY closed this Friday at a slight 21-point high (4.63 dollars per ton) for March/2015. The other months closed the session between unchanged and at a 15-point high, with no news on the export physical market. March 2015/May 2015 spread opened to 32 points pointing to a cost and carry of over 12% a year.
Hydrous ethanol recovered a little over one cent of dollar per liter this week closing the week at 1.1853 reais per liter ex-mill and tax-free.
A quick ad hoc survey on companies which might have rolled over their sugar exports which were to embark from May/2014 up to now show they are losing an estimated 350 points, or 77 dollars per ton. On the other hand, the year has been awful for most of the trading companies whose books contemplate long-term contracts with the mills whose original discounts are at least 10-15 dollars per ton more expensive than the spot market. A trader has lamented that this year’s bonus has gone down the drain.
With the devaluation of the real against the dollar by 8.75% over the past 30 days, the 3% increase Petrobras has recently practiced has been good for nothing. The difference between the price at the pump and the foreign market is back and is around 10%.
Another Petrobras director has been arrested by the Federal Police. The Department of Justice has frozen the assets worth R$720 million of 36 people arrested and involved in this sick scheme which has thrown mud at the name and prestige of one the largest companies in the world. I hope this country will start to witness the gradual deconstruction of this infamous and disgusting gang which causes shame to its good citizens. PT, as a political commentator from Brasilia has said on the radio, is a party that does not fear kissing a snake or hugging the devil. Never before has this sordid anything-goes principle been seen in the history of our Republic.
Watch the one-and-a-half hour long interview former Agriculture Minister Roberto Rodrigues gave on the TV program Roda Vida (http://youtu.be/KIu9sNN4Rg8) if you haven’t yet. Rodrigues is UNICA Council Chairperson and one of the biggest experts in agribusiness of the country and explains the problems the agribusiness and mainly the sugar-alcohol sector is going through due to the lack of government planning simply and directly. When asked about how he felt to see the Brazilian government financing the construction of a port in Cuba while ours need structure, the former minister was brief, “Upset”.
Have a nice weekend everybody.
Arnaldo Luiz Corrêa
