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“From where you least expect it…that’s from where nothing comes.”

Baron Itararé (1895-1971), Apparicio Torelly
Brazilian journalist, writer and political humorist


The number of sugar futures contracts traded at the NY exchange this week was lower than that seen over Christmas week. This is the raw picture of a market lacking encouraging news and stuck on a harrowing wait for refreshing consumption data, which seem to be non-existent.

Keeping an eye on the progress of the global sugar production, the funds can’t seem to find any incentives to add on new positions, because they are long on a market that has pretty much been pushed aside for two months (the average of the closings since March has been 11.25 cents per pound). Funds like volatility and strong emotions, and sugar has been cramped within a 100-point interval for fourteen weeks.

October/2020 in NY closed out Friday at 11.49 cents per pound, a 24-point drop or a little over 5 dollars per ton against last week’s closing. We can see that months with a shorter maturity closed at 4 dollars per ton below the longer maturities on average. Maybe some mills with less cash flow availability, and for that reason are still late on fixing in this harvest, have sped up the volume of hedging even due to the contract they have with the trading companies, which is more restrictive for pricing over periods longer than 180 days before the actual shipment.

The real performed well during the week due to the moves in the Congress toward a tax reform which encourages the financial market with the perception (right or not) of a reduction in the country risk.

With the dollar closing out the week at about R$5.2300, a 3% drop against last week, and sugar also dropping, the fixations in real per ton for this harvest and the following ones reduced by R$86 per ton in the week for the 20/21 harvest, R$68 for the 21/22 harvest and R$48 for the 22/23 harvest. I have been reiterating that prices in real per ton can’t be missed.

The Archer Consulting model has found that the mills fixed 900,000 tons of sugar for export in June during the 2021/2020 harvest bringing the fixed total up to 4.2 million tons of sugar at the average price of 12.07 cents per pound premium-free. If we take into account an export of 25 million tons, the fixation percentage is 16.8%, an unprecedented volume against the previous years, because the mills have never been so early fixing a subsequent harvest, when the current is still only at the beginning.

The average value of fixation is R$1,418.67 per FOB Santos ton, with a polarization premium, equivalent to R$0.6176 per pound with pol. The average dollar in June was R$5.1918 with a 7.93% drop against the previous month’s average price.

While August and September aren’t here yet, so that  we have a less blurred view of what might happen to the sugar and energy market (I’m talking oil, gas and of course ethanol prices), India has increased its sugar export estimate for the 2020/2021 harvest, which starts next October, to 6 million tons.

Let’s do the math together: the subsidy for sugar export in India is 140 dollars per ton paid after the shipment (it takes some time, but the government pays it). The production cost in India, according to our numbers, is 19.15 cents per pound at the production unit. If we take away the subsidy, that comes to 12.80 cents per pound at the production unit. If we add another 100 points for transport and port shipment expenses, it is reasonable to assume that if NY trades between 13 and 14 cents per pound, India will flood the world with sugar, reaching its share of 6 million tons.

Meanwhile, on this side of the planet, the Center-South has already cumulatively produced until the first fifteen days of July/2020 – according to UNICA – 16.3 million tons of sugar – almost 50% above the volume over the same period last year (10.9 million tons). Ethanol suffered a small decline: the total production until the first half of July reached 12.1 billion liters against 12.9 billion over the same period last harvest. The production mix is at 46.69% for sugar and 53.31% for ethanol, showing a migration of 11.8% of sugarcane from ethanol to sugar if compared to the same last year’s numbers.

Funds are long at a total of 81,322 lots (although they must have reduced the position due to the strong sales seen last week in NY) and they will need to roll over this position to the next maturity (selling October and buying March), putting pressure on the October/20-March/21 spread; the Center-South doesn’t seem to have much more volume to fix against October and March regarding the 2020/2021 harvest, but even so it must have about 35,000-45,000 lots to sell (to fix); India will also start fixing at any sudden increase in prices (rally); more sugar will be produced in the Center-South and we expect a pretty high carryover stock.  Under what circumstances can we expect buyers interested in sugar to come along?

About the issue we have been talking about here again: August and September are crucial for the perceptions to take root. It looks like, though, looking at the current cloudy picture, that the market will need a conjunction of good news so that it can go beyond the 13-14 cents per pound. But this is also a price India is anxiously waiting for.

Have a nice weekend everybody.

Arnaldo Luiz Corrêa

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Receives weekly comments from the market