The futures sugar market in NY closed another week at a significant high. May/2016 closed Friday traded at 15. 97 cents per pound after having been at 16 cents, accumulating a 84-point positive variation in the week, a little over 18 dollars a ton.
This strong market can be attributable to Thailand, whose harvest has shrunk, to China, which should demand (import) more white sugar, and to Brazil, whose pricing has been put on hold since the real obtained from the 2016/2017 and the 2017/2018 fixations is smaller now, for it has valued against the dollar. From February 22, when it reached 12.45 cents per pound, to Friday, the market has gone up 365 points, that is, nearly 30%.
Friday’s closing converted by the Central Bank exchange rate was R$1,325 per FOB ton. The trading months with longer maturity had their values diminished in real per ton. These missed opportunities, be it due to the lack of credit to operate derivatives, be it due to the lack of courage to fix and take a chance on the market continuing to go up, just goes to confirm the maxim that says “nobody goes bust with profit in the pocket”.
The performance of the agricultural commodities in the yearly accumulated has improved a lot, but it can improve even further. Soybean oil has increased 7.8%, oil has increased 7.5%, sugar has increased 4.5%, while wheat, cotton and orange juice are still in the red.
The funds are still positioned on sugar, and the trajectory of the prices encourages them to at least keep their positions. Our masters teach us to let profit grow. A possible change in the government in Brazil via president Dilma’s impeachment might raise the values in NY to 16.75 cents per pound (taking the mininum price of R$1,250 per ton as a basis).
We have said that sugar should enter a cycle of hikes (see last week’s report). Some production and consumption simulations made for the next two harvests show signs that our feeling is proving to be correct. Based on the consumption analysis of countries in Asia, the Middle East and North Africa, and taking into account the increase limitation for the production capacity of some countries (Brazil, for example, whose sugarcane production has basically been stuck for a few years), we estimate that both the 2016/2017 and 2017/2018 harvests might present deficit. World consumption is growing from 1.9% (our number) to 2.2% (ISO number), while production has been at 1.6-1.7%. Any oscillation caused by time can open a gap between production and consumption.
A respected European analyist counters my comment that the high world stocks are a bearish factor for the market. He disagrees by arguing that “China has 6.5 million tons, but this sugar doesn’t go to the market”. Not even “Thailand keeps stocks today (unlike two years ago)”. And he concludes with one of those truths we don’t usually want to see, ” I think stocks are a byproduct of lazy statisticians who take the previous stock (totally unkown), add production (accurate) to it, subtract from consumption (unknown) and there you go”. That’s true.
Meanwhile, fuel consumption in the country continues falling in terms of equivalent gas. Over the last twelve months, it has already fallen 5% and it tends to get worse. However, carryover stock of ethanol will be pretty short.
The “Crime Syndicate” keeps embarrassing all the country abroad. Brazil has been on the headlines in almost all newspapers around the world due to the political and moral crisis we have been going through. Appointing Lula as a minister so that he could have privileged jurisdiction makes Dilma the president who has embarrassed Brazil the most all through its republican history. There are no limits to the shamelessness and cynisms of this clique. Nefarious former president Lula was truly a prophet when he said some years ago that “in Brazil the poor person who steals is sent to jail and the rich person who steals becomes a minister”. The Supreme Court shall judge these disgraceful criminals with the full force of the law.
There are very few spots left before the registrations for the XXV Intensive Course on Futures, Options and Derivatives on Agricultural Commodities, which will be held on March 29, 30 and 31 from 9:00 am to 5:00 pm in São Paulo, close. For further information, send a message to priscilla@archerconsulting.com.br.
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Have a nice weekend everybody.
Arnaldo Luiz Corrêa
