“The difficulty lies not so much in developing
new ideas as in escaping from old ones”.
John Maynard Keynes (1883 – 1946)
British Economist
It’s like the week had never been. The sugar futures market in NY closed out at exactly the same level as last Friday. October/20 and March/21 closed out at 11.93 and 12.61 cents per pound in the week made short by the holiday on Monday in Brazil (Independence Day) and in the USA (Labor Day).
According to the CFTC, in the COT published on Friday about the position on the previous Tuesday, the non-index funds reduced the long position by 32,433 lots.
Over this period when the reduction took place (from Tuesday, September 1st to Tuesday, September 8th) the sugar futures market in NY dropped by 56 points. Some food for thought: a month ago the funds increased their long positions by 54,043 lots and moved 77 points, that is, they had to buy 700 lots so that the market could move 1 point upward. Now, while short covering, at every 579 lots sold the market moved 1 point downward, bringing to light the vulnerability of the position of the funds talked about so many times here. That is, with 20% fewer lots, the market drops as much as it took to go up.
We commented here last week that it’s important to look extremely carefully at the behavior of the per capita consumption of the main sugar consuming countries. The numbers aren’t encouraging. The actual consumption growth, not according to the total volume consumed by the countries but – more importantly – according to the additional number of grams of sugar consumed per inhabitant, shows us a worrying picture.
India, the greatest consumer, has increased consumption per capita by almost 2 kilos of sugar per person in the last ten years. Indonesia leads the way with an increase of 5.6 kilos of sugar per person over a 10-year period. Russia has increased its consumption by 4.3 kilos over ten years, although this number can be challenged. Pakistan follows suit with robust 2.56 kilos of sugar per person.
Surprisingly enough, Brazil, whose consumption has plummeted by 8.68 kilos of sugar per person over a decade, is on the list. That can be the reflection of a “healthier” generation, which chose sugar as a great enemy, of an improvement on the income of the average Brazilian, who changed his food pattern, and also the fact that we were already a voracious consumer of the product.
It’s worth noting that the food industry has also decreased the amount of sugar it puts in products such as chocolate-flavored foodstuff, cookies, chocolate bars, ice cream, among others. Mexico has also reduced its consumption by 2.68 kilos of sugar per person over ten years. Lastly, Egypt, which took us by surprise with a drop of 1 kilo, despite being, among the greatest consumers, the country whose population has soared by more than 23% over this period.
If we keep this huge drop in world consumption, which had been expanding by 2% per year at the beginning of this century and today is at less than 0.5% per year – not taking into account the break in consumption caused by the Covid-19 pandemic yet, whose numbers are still unknown, the world stock is doomed to grow 2.5 million tons of sugar per year unless there is some exogenous or climate factor.
What with smaller sugar consumption, oil in decline on the global market, fuel demand shrinking all over the world due to the global recession and a huge number of people working remotely in the midst of this set of events, it becomes difficult to foresee the sugar market trading above 14 cents per pound, because close to this level, India turns into a competitive seller, ready to unload up to 6 million tons of sugar.
A detail can change this more restricted view on the ascending trajectory: the drought which starts worrying nine out of ten agricultural directors of the mills in the Center-South. This might turn out to be the event that would lead the Center-South to producing the lowest volume of ATR for the next 2021/2022 harvest since 2009/20010. Does the market seem to be worried about that? Right now, not at all. Recession might be making everybody look the other way.
The volume of fixed sugar sales in Brazil for the next harvest might be approaching 7 million tons of sugar. The fear of a possible drought which can perk up the market in NY would restrict the mills’ appetite to stick with this strategy. There are alternatives not to lose out on excellent prices traded at the NY exchange (average of R$1,541 per ton in the months that correspond to the 2021/2022 harvest) and still take part in a possible sugar price hike – it’s time for the risk management to take the field.
After the success of the online version of the 34th Intensive Course on Futures, Options and Derivatives – Agricultural Commodities held over the last two weeks, Archer Consulting has decided to break its renowned course into two: the Essential Course on Futures, offering a program for producers and all the professionals who are not directly linked to trading, but need to have essential knowledge about commodity market operation, and the Advanced Course on Options, recommended to every professional in the commercial, financial, risk and control areas who need to understand the complexity of the operations of options, their risks and advantages. Both courses will be live and online. In Portuguese only. For further information and reservation, email us at priscilla@archerconsulting.com.br
Have a great weekend.
Arnaldo Luiz Corrêa
