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Sugar

THANK THE FUNDS
15/03/2024


The sugar futures market in New York closed out the week at 22.13 cents per pound, an expressive
95-point high, equivalent to 21 dollars per ton compared to the previous week’s close. Thank the funds. The COT (Commitment of Trades),  published this Friday by the CFTC based on Tuesday’s position, shows that the speculative funds were long by 18,335 lots after being zeroed out on Tuesday the previous week.

It’s imperative not to interpret the enthusiastic purchase of the funds as a direct sign of a change in the underlying fundamentals that rule the commodities market. Such activity can be motivated by secondary factors, such as the recently accumulated substantial profits by the impressive increase of 27% in cocoa price only this week. After significantly capitalizing on cocoa, they can be diversifying their portfolio and directing their resources towards other commodities within the group of the soft commodities. The regulatory and risk management measures adopted by the ICE (New York futures exchange) in response to this exacerbated volatility, in the specific case of the cocoa market, the exchange responded to the unchecked increase in prices and to the excessive speculation increasing the guarantee margin and reducing the limit of the maximum position for the contracts of first maturity. These actions are taken in an effort to stabilize the market, mitigate the risk of price fluctuations and guarantee a more controlled and less prone to distortions trading environment. So, why not go sugar?

The recently released forecasts by several analysts about the sugarcane production in the Center-South of Brazil point to a possible reduction in the production volume, estimated between 6 and 10%. This data stands out,especially if we consider that up to now the major mills in the region haven’t reported decreases in their production that align with this retraction range. This discrepancy suggests that, though the estimates point to a downward trend in production, the actual impact on the operations of the mills might not be as sharp aspredicted. The most unpredictable and potentially transforming variable is still the climate.

There are no doubts that the funds can drive the market up if they understand there is opportunity and cash on hand and start buying futures aggressively. The fixations of the mills are pretty high (around 75%) and focused on May/2024 and July/2024 and a possible buying avalanche wouldn’t find a counterpart to satisfy it. This is the market vulnerability. We just cannot afford to buy into possible narratives that might pop up backing the high, but changing the fundamentals. Right now, there is no stress in sugar supply.

On Wednesday, news coming from India (Reuters) suggested the country should produce 34 million tons of sugar, above the previous predictions. A strong lobby on the part of the mills should happen for the Indian governmentto free between 1 and 2 million tons of sugar for export after the elections that will be held in May. People close to these committees don’t believe India will export anything this year; however, if that happens, the symbolism an export might represent – even in a small amount – will cause a bearish impact on the market.

Our analyst Marcelo Moreira believes that May/2024, after trading at 21.13 cents per pound, which is the week’s low, has found buying strength, being able to close at 100 points above. Important supports now are at 21.60 and 20.50 with relevant resistances only at23.10/23.50/23.80 cents per pound.

Lula’s political intervention at Petrobras affects the sugar-alcohol sector, which still vividly remembers the turbulent years when the PT’s (Workers Party) gang was in power, especially during Dilma Rousseff’s dark administration. Over the six years under the command of the most dyslexic and dysfunctional president of the Republic – and let me tell you that over the last 20 years mediocrity has been an imperative demand in the resume of whoever holds the presidency in the “Planalto” – except for President Temer – the sector lost something like R$80 billion in today’s values in revenue and market share.  We all need now is for the mendacious guy in the “Planalto to make the mills maximize the ethanol production to lower inflation, for instance.

Authentic suck-up of left dictatorships, what Lula, in his recurring megalomaniac dreams, would really like is to change Petrobras into the PDVSA modes of Venezuela, a country he says is a model of democracy. Lula’s incoherent statements raises questions about whether they stem from poor reasoning made in his brain or whether they stem from less noble impulses in his bowels, direct reflex of his carefree rhetoric. Therefore, no wonder his popularity is falling sharply, going down the drain, towards popular contempt.

 

You all have a nice weekend.

 

Arnaldo Luiz Corrêa

 

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