The sugar futures market in NY seems to be a bottomless pit. Every week we reach even lower levels. This week was not any different and it closed Friday at 14.98 cents per pound – a fall close to four dollars per ton over the week. Every maturity month, which extends until October 2017, closed with negative variations between 2 and 23 points, or between 0.50 and 5.00 dollars per ton. I wonder where the bottom of this market is. A market analyst thinks the market can fall up to 14.50 cents per pound. Are we close to the bottom? Nobody knows.
The macroeconomic scenario gets more and more intimidating. To use a phrase inspired in an article in this week’s The Economist magazine, the low oil movement induced by the Saudis “will do to the shale companies’ finances what perfuration does to rocks”. In the 1980’s, when Saudi Arabia cut oil production by 75% and prices went up, an explosive growth in investments and production, which benefited the newcomers to the club ensued. Now the Saudi tactics seems to be that of figuring out who has the empty bottles to sell. That is, they will let the price melt down to a level where new investments and production will be unfeasible and put out of action countries the Saudis aren’t that fond of (to say the least): Russia and Iran. By the way, Saudi Arabia’s production cost is smaller than 6 dollars a barrel. The Brazilian pre-salt cost at least 65 dollar per barrel.
Meanwhile, the sugar-alcohol sector suffers. At current prices based on Friday’s closing and taking it for granted that there will be a 2%-increase in sugarcane volume, if the same mix of production of this harvest is maintained, the estimated revenue for the sector (Brazil) is R$73.4 billion. Today the debt is estimated to be at R$71.7 billion. How do you work this out? There is no moving forward without totally restructuring the debt of the sector.
An executive from the sector suggests, talking to a selective group, that the Federal Government be sued for incurred losses due to the gas price freeze. Does it make sense? According to him, VARIG set a precedent when it won in court credits it was entitled to because of losses caused by the airfare freeze policy during the Cruzado Plan (October 1985 to January 1992). The Federal Government appealed.
Besides, the hole of the scandal, which has made all honest Brazilians ashamed, keeps getting deeper and deeper. Not to mention all these criminals who have taken over the country. The Brazilian kleptocracy which has overpowered Petrobras also drags the sugar-alcohol sector along with it and the sector indirectly pays a considerable amount for the orders and counter-orders of the gang that has taken control of the company.
During Dilma’s four-year term, the dollars has gone from 1.6510 to 2.6510, while the Petrobras shares has melted from R$27 to R$10, a 63% fall in reais and 77% in dollars. This has happened only because of Dilma and her unbeatable capacity of incorporating King Midas the other way around. While Midas, a Greek mythology character, turned everything he touched into gold, Dilma, who unfortunately isn’t mythological, turns everything she touches into something else.
Some interesting data by International Transparency is that the greatest kleptocrats in history are, in order, Suharto from Indonesia with US$35 billion, Marcos from the Philippines with US$10 billion, Mobutu from Zaire with US$5 billion, Abacha from Nigeria with US$5 billion and Milosevic from Servia with US$1 billion. Brazil will take an important place – it will get at least a silver medal.
UNICA has released the number on sugarcane crushing for the second quarter of November. It reached 554.1 billion tons. Over the last six harvests, the total crushing up to the end of November ranged between 92.15% and 98.95%. If we take the two extremes away, the average was 95.52% (with extremes it would be 95.15%). That is, in theory we could reach 580 million tons. Sugar production has reached 31.5 million tons and ethanol production 25.2 billion liters. Using the same applied criteria, we would arrive at 32.5 million tons and 26.5 billion liters. Nothing changes much under the current environment since prices are really depressed.
Make a note on your calendar – the 23rd Intensive Course on Futures, Options and Derivatives – Agricultural Commodities will take place on April 14, 15 and 16, 2015.
Have a nice weekend – if you can after so much comforting news.
Arnaldo Luiz Corrêa
