The futures sugar market in NY closed out Friday with March/2021 at 14.72 cents per pound after having come close to 15 cents per pound but without being able to reach it.
Over the week, the accumulated appreciation was 6.60 dollars per ton for the abovementioned maturity and a little less for the months that make up the 2021/2022 harvest in the Center-South (May, July and October/2021 and March/2022) whose increase over the week was 3.40 dollars per ton on average. Interestingly enough, the positive fluctuation over the week for the 2022/2023 harvest was 6.60 dollars per ton as well.
The values in real per ton suffered a slight R$18 drop due to the appreciation of the real against the dollar over the week, which closed out at R$5.6185 against R$5.6832 the previous week.
The word frenzy is described in the dictionary as a “violent exaltation capable of causing someone to lose their mind”. The headlines of the news agencies over last week carried a good dose of this euphoria about the sugar market. We can sum up one of these provocative headlines with a simple question: do the funds buy because the market can go up further or does the market go up further because the funds buy? All of a sudden, everybody has become bullish.
Just remember that when the sugar market was trading at a little over 20 cents per pound in 2016, the manager of an Asian fund claimed as firmly as only an idiot would that NY would reach 60 cents per pound. We all know how this story played out.
For some analysts the mills are fixed by 60%. I also believe they are, at least 40% of them (the financially healthiest and with an adequate risk policy) are. How about the other 60% of the mills? Those mills whose credit rating is zero? The trading companies, as we know, allow the fixations for the mills according to the individual credit limit. Some can fix up to 18 months before shipment; others have 12 months, and there are those that can only fix when the sugar is in possession of the trading company. If 40% are fixed by 60%, by how much would the others be fixed in the best-case scenario – 25%? If you have other ideas, please share them with us at arnaldo@archerconsulting.com.br
Far it be from me to disbelieve or disqualify someone else’s opinion; I’d rather question and spark a passionless discussion about the course the sugar market might take next year. Some analysts point, for instance, to a sugar production of 36 million tons in the Center-South for the 2021/2022 harvest. So that such a huge sugar production reduction is conceivable, assuming that next year the max-sugar mode will still be on, we would need to have a scenario pointing to a reduction of about 4.5% in sugarcane production or in ATR, or a combination of the two. Will that be possible?
While the Indian subsidy doesn’t come, the funds increase their long position by almost 8,000 lots and now they already show off 252,000 long contracts equivalent to 13.8 million tons of sugar. The script and the narrative of an extremely bullish market are drawn up. The March/May spread has appreciated by 3 dollars per ton over the week. Hydrous is trading at 350 points of discount against sugar in NY.
We continue suggesting pricing in real per ton and the simultaneous purchase of an out-of-the-money call at some 200 points above the market when fixation takes place. The cost is around R$60 per ton if we choose to buy a call over 200 points. If we choose to just buy a call of exercise price of 16 cents per pound for the four maturities, the cost will drop to R$48 per ton.
If Brazil were a bit more serious country, Bolsonaro would already have been kicked out of the Presidential Palace through legal means. Clearly behaving as an unstable person, the president, be it out of jealousy, meanness, ignorance or insensitivity to more than 155,000 families who have lost their loved ones, has banned the import of the Chinese vaccine produced in partnership with the centennial and respected Butantan Institute, while more than 85% of Brazilians are willing to get vaccinated against Covid-19. Bolsonaro is only thinking about his reelection and he couldn’t care less about public health. When we thought nothing could be worse for Brazil after the disastrous Workers’ Party years, now we find ourselves up a tree with a bogus captain in command.
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It was early 1969 and I was a 10-year-old boy. School day on that Wednesday had come to an end and my classmates and I had planned to go to Vila Belmiro to watch Pelé play. Back then children under the age of 14 had free access to soccer stadiums, that is, they didn’t pay a single penny. It was my first time. Santos FC (in white) was playing EC São Bento (in sky-blue) from Sorocaba for the São Paulo State championship. Santos won 4 to 2 and Pelé scored two goals. My eyes would shine with emotion watching the King’s moves. That was when my passion for Santos Football Club started. Today, the athlete of the century turns 80 years old. Long live the King who delighted millions and millions of people all over the world with his dribbles, his wonderful moves and his 1,283 goals, 1,091 of which wearing the glorious jersey of Santos Football Club.
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Registrations (limited in number) for the two courses launched by Archer Consulting, totally online and live/pre-taped, are already open. One of them is the Essential Course on Futures in Agricultural Commodities, which will be held from November 23 to November 27 and is destined for those who need essential knowledge about commodity market operation; the other is the Advanced Course on Options in Agricultural Commodities from November 30 to December 4. Both will be from 5:00 pm to 7:00 pm through Zoom® and taped for future review.
For further information, email us at priscilla@archerconsulting.com.br
Have a great weekend.
Arnaldo Luiz Corrêa
