The week has been made shorter because of Thanksgiving in the United States. Even so, the sugar market in NY closed the week at an average 8-dollar-a-ton drop over the maturity months from March 2016 to March 2017. Friday’s session closed with the first maturity quoted at 14.97 cents a pound after having been close to almost 15.80 cents a pound. Based on Friday’s closing in NY and the Central Bank dollar rate, Friday closed at R$1,312 an equivalent ton. This should be a limiting factor to higher flights.
More and more mills, mainly those which have financial and operational structures, have been fixing sugar export sales for 2017/2018. The explanation for that is the real obtained via NDF (non-deliverable forward) structures, together with the fixation of sugar contracts at the futures exchange in NY along the curve which represents the 2017/2018 harvest (May 2017 to March 2018), depending on the negotiation, can represent more than R$1,500 a ton, a highly remunerative price.
If we work with a scenario of Brazil’s recovering its credibility and the dollar plummeting against the real, say, to 3.3500, sugar in NY will have to trade at 19.52 cents a pound so that the same R$1,500 a ton can be obtained. If the dollar, in turn, reaches 4.000 over that period (we are considering the average maturity of the harvest), then NY will have to be at 16.35 cents a pound. In either case, NY will have to go up more than 500 points, in the first case, and close to 200 points in the second one. The mills can fix the values above and – if there is still some trace of concern – can buy a call at the exercise price which represents the break-even point of the values in real assuming the assumptions above. This is an excelletn oppportunity to improve the company results.
The average gas price on the foreign market has dropped to US$1.01 a liter. The fair value of a gas A (pure, anhydrous-free) is 3.8612 a liter. In order to keep the parity, giving competitiveness to hydrous, its ceiling price should be 2.4200 at the pump. If it goes over that, competitiveness is reduced, signaling the market there is a decrease in the consumption of the fuel and that more sugarcane is destined for sugar production.
The market has been working with very different numbers on fuel consumption pointing to a drop in consumption which is not true, at least not for the time being. You see, up until October, the accumulated total of twelve months of Ciclo Otto fuel consumption, including the period of November 2014 to October 2015, has added up to 59.1 billion liters. This number is 4.02% above the same previous period. If we compare the equivalent gas consumption over the same period, 53.9 million liters in the accumulated twelve months until October, which represents a 1.67% increase against October last year. Therefore, consumption hasn’t dropped yet, but it will.
Consumption increase over a period against the previous one (twelve months) has dropped a lot, but is still positive. Over the last twelve months, there has been a Ciclo Otto 2.28-billion-liter rise in consumption. Ethanol share in consumption is at 47.9% while gas is at 52.1%. This has been the largest percentage share of ethanol in the consumption mix since May 2011.
An executive from the sector was telling friends about a market paradox he had picked up on – the mills with lower (or no) financial condition, whose credit with the trading companies makes it impossible for them to hedge ahead of delivery time, are now enjoying better prices since the market has substantially improved over the past few months in real per ton. He, whose company is in a good financial standing, has been able to get clearly lower prices. These are life paradoxes.
How about the funds, huh? I don’t believe they will settle their winning positions before the end of the year. The March/May spread stands firm and we hardly ever watch the funds settle long positions on an inverted market, whose spread, for instance, keeps appreciating. This is something to be checked.
Lula’s Brazil, of the criminal organization disguised as a political party called PT (Workers’ Party) and of the most mediocre government in the history of the country arrogantly run by the lamp post called Dilma Roussef, has turned into the most stinking open sewage in the world. The scoundrel behavior, scorn, and nerve with which these infamous villains have been treating the country are unparalleled in the contemporary universal history. They have made the country and Petrobras go bankrupt, and keep on doing so and destroying everything that comes their way. Lula and PT (Workers’ Party) are the Brazilian version of the Islamic State. They act like suicide bombers who blow up this country’s good citizens’ dignity every day, shoot at the ethics with the promiscuous relationship they have with billionaire businessmen, destroy reputations by leveling everybody off with their own scoundrel ruler and won’t give up on their abominable objective of murdering the Brazilian democratic institutions every day. How much longer will Brazil hold out?
Put it on your 2016 calendar – the Night Option Course will be held on February 22, 23, 24 and 25 in São Paulo. On March 29, 30 and 31, the XXV Intensive Futures, Options and Derivatives on Agricultural Commodities Course will take place.
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Have a nice weekend everybody.
Arnaldo Luiz Corrêa
