The sugar futures market in New York took a beating last week. May/2024 plunged into free fall this week, closing out Friday at 20.47 cents per pound, shrinking 147 points – equivalent to more than 32 dollars per ton – which together with the devaluation of the real against the dollar (which came to 5.1485) caused the sugar downturn by 139 points per ton compared to last week.
If the sky stays clear with no storms or thunder, nor flocks of black swans, the fundamentals will impose themselves and there is not fighting them back. The speculative funds according to the COT (Commitment of Trades), published on Friday by the CFTC (Commodity Futures Trading Commission), based on the previous Tuesday’s data, were long by a little over 33,000 lots, reducing 40% the volume they had a week before. More volatile markets such as cocoa and coffee can be causing this fluctuation on the position of the speculators that make short flights with their positions.
Whoever travels around the countryside and looks at the compact sugar fields, green and healthy, ends up seeing any bullish feeling they might have slightly dwindle. The forecast numbers for sugarcane crushing by several participants and market analysts for the Center-South in the 2024/2025 crop are at 604.5 million tons on average if the extremes are rooted out of the calculation, according to data collected by Novacana.
Based on the report published by UNICA, the Center-South ended the 2023/2024 crop crushing a total of 654.4 million tons of sugarcane which produced 42.4 million tons of sugar and 27.3 billion liters of ethanol (in addition to 6.3 billion liters of corn ethanol). For the crop that is starting, if the sugarcane production forecast comes true, the market will have a 7.5%–drop in the amount of sugarcane to be crushed.
Keep in mind that the market expectation is for the sugar mix to jump from the 48.9% seen in the crop that has ended to 51.8% expected for the current crop. Therefore, the final sugar production should reduce by only 500 thousand tons, without impacting the product availability. However, if the mix stayed unchanged, the reduction in sugar production would be almost 3 million tons. In other words, a change in the mix makes Brazil makes up for the sugar shortage from Thailand, for instance.
The recent combination of better prices (likeduring previous week) and a weaker real sped up the pricing movement by the mills. Although the prices in cents per pound are below the levels seen at the start of the last quarter of 2023, the values in real per ton are still appealing. It’s a fact that the mills that invested in sugar mill were right about fixing prices, getting a return on the project more quickly and more consistently.
It’s interesting to see that the average over the last 10 years of New York closings converted into real and adjusted by the IPCA amounts to R$2,143 per ton, which places the NY long-term theoretical support at 18.75 cents per pound. This is the level that seems to be the market floor to us, a kind of long-term support.
Another point worth mentioning is that up until the last two weeks of March, the accumulated production reached 30.2 million tons, 0.4 greater than that of the same period of the last crop. Two-hundred and ten mills were still operating against 187 last year. Translating: there is still sugarcane to be ground and the final number will be greater than last year’s.
Get ready for a market with more volatility in the second semester. A possible Trump’s win will bring more instability to the geopolitical landscape with implications on the energy commodities. You’d better watch and look for safeguard alternatives.
May/2024 found strong resistance on the moving average of the 100 days at 22.60 and realized breaking the support of the Bollinger band of the 50 days at 20.70 closing out the week at the year’s low at 20.47 cents per pound. Next supports at 19.80/19.09 cents per pound and resistances at 21.60/22.10; July/2024 closed out the week at 20.15 cents per pound with the next relevant support at just 18.53 cents per pound and resistances at 21.30 cents per pound and 21.70 cents per pound.
You all have a great weekend.
AArnaldo Luiz Corrêa
