The sugar market closed Friday for March 2017 at 20.42 cents per pound, a significant 69-point drop in the week, or 15 dollars per ton. The market tried to break the 21 cents per pound for several times but failed to stay above that level longer.
Any change to the threshold will depend on the strong changes to the perception of the fundamentals. In February, as we have said before, prices in cents per pound tend to be slightly better than those in January. This, in the model we give clients, represents a fluctuation of a little less than 1.5% against the average price in January, which was 20.54 cents per pound. So, February would come to the average price of 20.82 cents per pound. Up until this Friday, it was 20.78 cents per pound. That is, based on the model, despite its limitations, the market is heavy.
With the oil too weak to go beyond 55 dollars per barrel and the real strengthening against the dollar, those who think in real per ton have a sour taste in the mouth from regretting passing up on several opportunities to set prices at values which today are at 250-300 real per ton below the highest levels ever registered.
The perspective for better prices for sugar in cents per pound should make lots of mills prioritize exporting the produt and pushing the domestic market aside, or even ditching it. The behavior, possible for companies that think in dollars per ton, can open up room for a price imbalance.
We are all aware of the strong correlation there is between the two markets, but the race seen in the sugar contracts for export during this next harvest might leave some industrial consumers at a loss. If everybody wants or would rather prioritize exports because they understand there is more profitability in this segment, it is feasible that a price shift between the two markets might happen.
On the other hand, gas price on the foreign market is lower than that charged by Petrobras. A strong real and weak oil make sugar more vulnerable, for they decrease the profitability of ethanol. That is, more sugar might be produced.
The game is open. There are variables which can bring more vulnerability into the market , which subsides when the fundamentals are clearer and there are, likewise, other exogenous components which might cause greater fluctuations. In short, I don’t know if the fact of having participated in a seminar on risk, led by Nassim Taleb, here in NY all week has made me seen black swans all over the place. Jokes aside, I’m not into markets which stay restricted to a price interval for a long time.
Over the last three months, NY has stayed between 21.90 and 17.84 cents per pound, with a 19.92-cent-per-pound average. Where are the next 200 points headed for – 22.42 or 18.42? The fundamentals and the patience of the funds will show us the way.
Over the last sixteen years , in just five opportunities, the average price traded in May has been higher than the average price traded in February of the same year. Most of the times, therefore, the average price in May has dropped by 16% off the price seen in February.
A lot of traders are in Dubai now. The conversations there usually have a bearish slant for obvious reasons. Over the last years, however, no change has been felt in the price trajectory after the conference.
There are NO MORE spots for the Archer Consulting XXVII Intensive Course on Futures, Options and Derivatives – Agricultural Commodities to be held on March 14 (Tuesday), March 15 (Wednesday) and March 16 (Thursday) from 9:00 am to 5:00 pm at the Hotel Paulista Wall Street in Sao Paulo – SP. To get on the waiting list in case someone drops out, contact us at priscilla@archerconsulting.com.br
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Have a nice weekend.
Arnaldo Luiz Corrêa
