The sugar futures market in NY took a nasty fall last week, with May/2022, which expires next Friday, closing out at 19.21 cents per pound, closing at the lowest of the day with 84 points of retraction against the previous week, almost 19 dollars per ton. The great pressure occurred on the shortest maturities.
The market is slowly heading toward the cash and carry condition where the contracts with shorter maturities are cheaper than those with longer maturities. This happens because the market realizes there is a balance between the product supply (actually, more supply than demand) and understands there won’t be a shortage of availability of it. So, buyers are in no hurry to make their purchases or refill their stocks.
There is no way to get away from the fundamentals, though the funds have led this recent high through huge purchases that – according to the performance over the past days – must have brought them huge losses, because they settled what they had bought. India and Thailand were the ones who took advantage of the recent high. They found prices above 20.50 cent per pound to be pretty appealing and fixed a good volume. Brazil must also have fixed, but little, because great part of what was left over to be fixed in this crop that is starting is just that sugar which will be produced and exported against March/2023.
At an event held in Ribeirão Preto last week, there was a consensus among the participants about a sugarcane crop in the Center-South of about 550 million tons, a number pretty close to our estimate. There is nothing that will shake up the market because of these numbers. The funds had better be careful because they are long by 175,000 contracts based on the number released on Tuesday by the CFTC (Commodity Futures Trading Companies). There might be a great surprise.
Some components can get in the way of the sugar trajectory over the medium term. One of them is the political crisis Brazil renews every day with the stormy relationship among the branches of government and that can make the dollar appreciate again against the real. On Friday, the Brazilian currency hit R$ 4.8400 contributing to the drop in NY. As there is no sign of progress in the dialogue between the Executive and Judiciary branches, many economists are betting the dollar can now go back to R$ 5.2000 again. If this happens, the market might see sharp drops in sugar. Another fact is the inversion of the commodities we have talked about several times here; a possible end of the conflict between Russia and Ukraine can cause the settlement of part of the funds of speculative long positions. Also, it’s worth watching the behavior of the market getting away from risk assets due to the signaling on the part of the FED of the increase in interest rates from May on.
The sugar closings in NY converted into real per ton applying the NDF (Non-Deliverable Forward), a contract in term of the currency with financial settlement, point to a 40-real shrinkage in the week for the corresponding months of the 2022/2023 crop of the Center-South, while the 2023/2024 crop shrank only 16 real per ton. Hydrous was traded at the equivalent to NY plus 340 points. It’s obvious that there is something really wrong with this equation. The trend is that there will be some ethanol price accommodation as soon as the product availability gets more robust.
In India, the government has opened a six-month window for the companies to present their projects for new distilleries or expansion of existing ones in order to increase ethanol production for consumption in that country which, as is known, is the third greatest consumer of energy of the planet.
You all have a great weekend.
Arnaldo Luiz Corrêa
