The sugar futures market in NY went through a downward trend this week. On Thursday, the expiration of the futures market maturing in March/2024 was followed by a strong delivery of 1.3 million tons of Brazilian sugar, a particularly high volume for an off-season period. Last year, just as a comparison, there was a delivery of 586,000 tons, less than half of this Thursday’s volume.
Those who delivered it took advantage of a spread that created great opportunities to get rid of the product now and receive it with discount on the next maturity, or even to deliver it right away and buy from the mill for April shipment with great discounts. At some point last week the spread was showing an annualized discount of 25% and was highlighting that those who had available product would be delighted to deliver it. Evidently, those who received it already had a destination for the sugar, because nobody wastes money receiving a product that is worth less the next day.
Finally, New York wouldn’t have it any other way and responded negatively to the physical delivery and closed out the week at 21.00 cents per pound for May/2024 (now the first contract on the screen) suffering an accumulated 82-point drop, equivalent to 18 dollars per ton. A same scale downturn was felt on the next trading months : July/2024 also shrank 18 dollars per ton, October/2024 lost 16 dollars per ton and March/2025 lost a little less than 15 dollars per ton.
The average value of the sugar of the 2024/2025 crop, based on Friday’s close and converted into real per ton applying the NDF (Non-Deliverable Forward), dropped R$107 per ton over the week coming to the average price of R$2,402 per equivalent FOB Santos ton. Just to put into context that the average fixation for the 2024/2025 crop, covering 72% of the next crop exports, according to our model, is R$2,516 per FOB Santos ton. That is, those who fix the balance amount they still have now will do it at an average price below the average seen so far.
According to the CFTC (Commodity Futures Trading Company), the COT (Commitment of Trades), published this Friday with last Tuesday’s data, showed that the speculative funds were long by 30,642 lots. However, it should be pointed out that after this drop of almost 150 points in sugar in just two trading sessions, this number must have gone down.
If the speculative funds look at their portfolio separately in energy, metal, grain and soft (where sugar is in) commodities, we can infer that out of the soft commodities (sugar, coffee, cotton, orange juice and cocoa), sugar is the least charming nowadays. The last three commodities are more volatile and volatility is raw material the speculators love. In the yearly accumulated, cocoa has already gone up 53%, cotton 17% and orange juice 15%.
We reiterate that the sugar market will have great difficulty in surpassing 25 cents per pound with the current fundamentalist setting. It won’t help at all if the funds withdraw or, even worse, if they decide to go back to sugar being aggressive sellers or through a long/short operation, a strategy where they buy a commodity they believe will go up and sell the same notional value of a commodity they believe will drop or will increase less.
This is what we must have on the radar and not fall for the position. The two major vulnerable points that could increase the current level of the market are: the sharp rise of the water deficit jeopardizing the sugar availability and a possible return of the purchase of the funds without a selling counterpart as the mills are well fixed. This last point has lost strength.
After delivering more than 1,100,000 tons of sugar, the major seller posted on Twitter – whose name the annoying Elon Musk changed to X just to piss us off – his forecast for sugar production for the 2024/2025 crop in the Center-South, which hasn’t started yet, is between 42.5 and 44.5 million tons. Two things they mentioned that I believe make sense: the Indian production that can surprise us and the Thai production that should be better than what the market expected. As for the forecast volume for the Center-South, I believe it’s still early and the hydrous deficit really worries us. It’s worth remembering, however, that a year ago, the most optimistic forecasts pointed that the Center-South would have a sugarcane production of 617 million tons and a sugar production of 37 million tons of sugar for the 2023/2024 crop. We ended up with almost 600 million tons and 42.2 million tons, respectively.
What does our analyst Marcelo Moreira say? Although the stochastic indicator is pointing to K4, N4, V4 maturities as being oversold, the other H5, K5, N5 and V5 maturities still have room to fall. Over the short term we can see the market going for 20 cents per pound, with an important support around 19.80-19.90 cents per pound. The resistances in K4 are at 22.00/22.10/22.60 cents per pound and at 21.70/21.90/22.10 cents per pound in N4.
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The New Advanced Course on Options on Futures – Agricultural Commodities has already been set to take place on April 2 (Tuesday) and April 3 (Wednesday), from 9:00 am to 5:00 pm at the Hotel Travel Inn Paulista Wall Street, on Rua Itapeva, 636, Bela Vista, São Paulo, SP. We have introduced new modules, with strategies, book management, delta hedging and trading game, among other subject matters. For further information, contact priscilla@archerconsulting.com.br . There is a limited number of participants.
You all have a nice weekend.
Arnaldo Luiz Corrêa
