The sugar market continues to bring happiness to those mills which have adopted an adequate risk and pricing management. Of course there are people crying due to the triggering of over-the-counter operations which at current prices have doubled their fixed volumes, but, on the whole, the market has improved the sector’s mood. This Friday, March/2016 closed at 14.27 cents per pound, practically unchanged compared to last week. It stayed so until July/2017. In the other trading months until May/2018 there was some price improvement by about 4 dollars per ton.
Current prices, taking into consideration only the closing of the first trading months on the futures sugar market in NY converted into real by the closing exchange rate of the day supplied by the Central Bank, reach R$1,250 per ton. Remember that less than three months ago using the same cited criterion the price was R$830 per ton. In a not longer than 20-day interval the price in real per ton went up more than 30%. Two things are worth commenting on: the last time we saw this price level in real was in February 2011 (NY at 32.68 cents per pound and the dollar at 1.6800) and the last time we saw an increase in this percentage was in November 2010. That is, this is a unique situation we are in. The average over the last five years has been R$942 per ton and the NY average has been 19.69 cents per pound!
Funds are long 133,500 lots and, according to Marcos Masagão, analyst with Futures Analysis (http://www.futureanalysis.com.br/) the average entry price of funds since they started to build this position has been 13.53 cents per pound, which means an unrealized profit of US$110 million on the table, based on Friday’s closing. It is still little in view of what we have seen in the past. The perception of the funds is that sugar seems to have a limited risk of decline, especially if we compare the accumulated performance over the last twelve months.
What bothers me a little is that the physical market is trading at a discount level above what would be reasonable (taking into consideration financial, storage and insurance costs), that is, the demand of the physical is still in dichotomy with the future. In order to irrefutably validate the market turnaround, we would have to start seeing an effective improvement on the traded values on the physical market. However, the perspective of what the world’s sugar deficit will be grows every day. We started out with 1.8 million tons and now we are at 5.8 million tons, according to Manoel Passos, economist and commodities analyst with Itaú Bank.
Another important point that explains the support for current levels is that the market is inverted, that is, the prices with shorter maturities are higher than longer prices. This happens in March in relation to May, since it is the off-season in the Center-South and also in May in relation to July, which turns on a yellow light. The market, dear readers, seems to believe the start of the crushing of the next harvest will take place later, there will be less sugar availability at first because the mills should focus on ethanol, there is little available sugar for sale against May because the fixation volume is already high compared to the other years and, therefore, some trading companies have bought the May/July spread earlier.
Although we still keep our sugar harvest estimate for the Center-South at 581.2 million tons, producing 30.6 million tons of sugar and 26.5 billion liters of ethanol, another monitoring we do by means of models shows this number can be slightly lower, coming to 576.3 million tons. Last year, using exactly the same criteria we have used over the past years, our number for the sugar season in the Center-South was 575 million tons while most market forecasts bet on numbers up to over 600 million tons. The final number, according to UNICA, was 571.3 million tons.
A strong argument by a known sugarcane producer is that “we can’t underestimate the crushing which will happen after December 15”, which can make the difference in the argument in the previous paragraph. Anyway, I think we will really have a more constructive year.
A campaign sponsored by the oil industry aiming at convincing Obama and consumers that ethanol is worse for the climate than gas, increases food costs, and harms engines, among other things, started on Friday in the United States. With oil at a historic low, each one feathers his own nest. Those who have been on the commodities market for a long time have already witnessed these unpleasant debates. Coffee has already been a health villain, and so has sugar. Now ethanol “pollutes more than oil”. It is a shameless dog-eat-dog situation.
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In Brazil, robbery on the part of the great majority of the politicians has gotten so that it is impossible to keep up with the investigations of the Federal Police and Prosecutor’s Office into these outlaws’ wrongdoings. PT’s (Workers’ Party) and its allies’ 13-year-long administration has been the hugest robbery in the history of human civilization. Compared to them, Mohamed Suharto who was president of Indonesia from 1967 to 1988 and stole US$35 billion is just a pickpocket. When we think Brazil has hit rock bottom as far as the immorality, shame, subversion of values, cynicism, banditry and nerve of these public money thieves, we keep on digging up and finding yet more scams. Brazil will take decades to clean up the mess created by these scumbags. The stolen money that could go to health, education, and safety causes more direct and indirect deaths than many wars do. The hardest battle for the current and future generations in Brazil will be to get rid of these vampires and keep them away from good people.
Take note: the III Advanced Course on Agricultural Options will be held on November 30 (Monday), December 1 (Tuesday), December 2 (Wednesday) and December 3 (Thursday) 2015 from 7:00 pm to 11:00 pm at the “Espaço Maestro” on Rua Maestro Cardim, 1170, Paraíso, São Paulo, SP. To register or to get further information, contact priscilla@archerconsulting.com.br.
If you want to get our weekly comments on sugar straight through your e-mail, just register at https://archerconsulting.com.br/cadastro/.
Have a nice weekend everybody.
Arnaldo Luiz Corrêa
The sugar market continues to bring happiness to those mills which have adopted an adequate risk and pricing management. Of course there are people crying due to the triggering of over-the-counter operations which at current prices have doubled their fixed volumes, but, on the whole, the market has improved the sector’s mood. This Friday, March/2016 closed at 14.27 cents per pound, practically unchanged compared to last week. It stayed so until July/2017. In the other trading months until May/2018 there was some price improvement by about 4 dollars per ton.
Current prices, taking into consideration only the closing of the first trading months on the futures sugar market in NY converted into real by the closing exchange rate of the day supplied by the Central Bank, reach R$1,250 per ton. Remember that less than three months ago using the same cited criterion the price was R$830 per ton. In a not longer than 20-day interval the price in real per ton went up more than 30%. Two things are worth commenting on: the last time we saw this price level in real was in February 2011 (NY at 32.68 cents per pound and the dollar at 1.6800) and the last time we saw an increase in this percentage was in November 2010. That is, this is a unique situation we are in. The average over the last five years has been R$942 per ton and the NY average has been 19.69 cents per pound!
Funds are long 133,500 lots and, according to Marcos Masagão, analyst with Futures Analysis (http://www.futureanalysis.com.br/) the average entry price of funds since they started to build this position has been 13.53 cents per pound, which means an unrealized profit of US$110 million on the table, based on Friday’s closing. It is still little in view of what we have seen in the past. The perception of the funds is that sugar seems to have a limited risk of decline, especially if we compare the accumulated performance over the last twelve months.
What bothers me a little is that the physical market is trading at a discount level above what would be reasonable (taking into consideration financial, storage and insurance costs), that is, the demand of the physical is still in dichotomy with the future. In order to irrefutably validate the market turnaround, we would have to start seeing an effective improvement on the traded values on the physical market. However, the perspective of what the world’s sugar deficit will be grows every day. We started out with 1.8 million tons and now we are at 5.8 million tons, according to Manoel Passos, economist and commodities analyst with Itaú Bank.
Another important point that explains the support for current levels is that the market is inverted, that is, the prices with shorter maturities are higher than longer prices. This happens in March in relation to May, since it is the off-season in the Center-South and also in May in relation to July, which turns on a yellow light. The market, dear readers, seems to believe the start of the crushing of the next harvest will take place later, there will be less sugar availability at first because the mills should focus on ethanol, there is little available sugar for sale against May because the fixation volume is already high compared to the other years and, therefore, some trading companies have bought the May/July spread earlier.
Although we still keep our sugar harvest estimate for the Center-South at 581.2 million tons, producing 30.6 million tons of sugar and 26.5 billion liters of ethanol, another monitoring we do by means of models shows this number can be slightly lower, coming to 576.3 million tons. Last year, using exactly the same criteria we have used over the past years, our number for the sugar season in the Center-South was 575 million tons while most market forecasts bet on numbers up to over 600 million tons. The final number, according to UNICA, was 571.3 million tons.
A strong argument by a known sugarcane producer is that “we can’t underestimate the crushing which will happen after December 15”, which can make the difference in the argument in the previous paragraph. Anyway, I think we will really have a more constructive year.
A campaign sponsored by the oil industry aiming at convincing Obama and consumers that ethanol is worse for the climate than gas, increases food costs, and harms engines, among other things, started on Friday in the United States. With oil at a historic low, each one feathers his own nest. Those who have been on the commodities market for a long time have already witnessed these unpleasant debates. Coffee has already been a health villain, and so has sugar. Now ethanol “pollutes more than oil”. It is a shameless dog-eat-dog situation.
—
In Brazil, robbery on the part of the great majority of the politicians has gotten so that it is impossible to keep up with the investigations of the Federal Police and Prosecutor’s Office into these outlaws’ wrongdoings. PT’s (Workers’ Party) and its allies’ 13-year-long administration has been the hugest robbery in the history of human civilization. Compared to them, Mohamed Suharto who was president of Indonesia from 1967 to 1988 and stole US$35 billion is just a pickpocket. When we think Brazil has hit rock bottom as far as the immorality, shame, subversion of values, cynicism, banditry and nerve of these public money thieves, we keep on digging up and finding yet more scams. Brazil will take decades to clean up the mess created by these scumbags. The stolen money that could go to health, education, and safety causes more direct and indirect deaths than many wars do. The hardest battle for the current and future generations in Brazil will be to get rid of these vampires and keep them away from good people.
Take note: the III Advanced Course on Agricultural Options will be held on November 30 (Monday), December 1 (Tuesday), December 2 (Wednesday) and December 3 (Thursday) 2015 from 7:00 pm to 11:00 pm at the “Espaço Maestro” on Rua Maestro Cardim, 1170, Paraíso, São Paulo, SP. To register or to get further information, contact priscilla@archerconsulting.com.br.
If you want to get our weekly comments on sugar straight through your e-mail, just register at https://archerconsulting.com.br/cadastro/.
Have a nice weekend everybody.
Arnaldo Luiz Corrêa
