The fundamentals of the sugar market don’t change at the same speed as the feelings of the market participants do. That’s why we have seen great oscillations in NY over the last two weeks, leaving the hard task of trying to explain the inexplicable up to the analysts. Only this week, we have had an oscillation of more than 100 points (1578-1477), slightly lower than that of the previous week (1512-1400). In April, May/2016 showed 178 points of oscillation (1578-1400) up until Friday’s closing. That is, the dichotomy between the reality of short term and perspective of long term is overwhelming – they are two different worlds.
The week ended up being positive with May/2016 closing Friday’s session being traded at 15.26 cents per pound, a 22-point gain against last week’s. Overall, all maturities closed the week with a positive sign, ranging from 9 to 27 points , about 2 to 6 dollars per ton.
It is believed that, generally speaking, the funds are regaining their appetite for the commodities. Oil has bounced back, reaching price levels close to the 45 dollars per barrel seen in early December, 2015. Soymeal, soybean and sugar, along with oil, are leading the commodities with positive variation in the yearly accumulated. Coffee, orange juice and cocoa are negative, but recovering as well. Therefore, there is still room for the funds to add more buys to the current position.
As for sugar, the fundamentals are still constructive and we could list a few points which should support this feeling: first, the Indian harvest, whose production has been revised downward; then, there is Thailand, which hit by a drought, should produce less sugar, affecting the white premium; and China, which, according to some traders, is pretty comfortable with the market at 15 cents per pound, that is, at an appealing level for the Chinese and, last but not least, oil over 40 dollars per barrel improves the arbitrage of ethanol with sugar.
What wipes out this long-term bullish feeling is the short-term bearish feeling, validated by the lack of demand of the physical (few export businesses, for example), by the crushing pace in the Center-South, which is above what was expected, by the pressure of hydrous sale, whose price has melted over the last 30 days and by the oscillation of the real, which eventually puts pressure on NY quotations. May/2016 closed equivalent to R$1,260 per ton. This is the value we believe is the price support in real for the sugar in the Center-South along this harvest.
With president Dilma just about saying goodbye to her mediocre term, despite her insisting on trying to show the world that the process against her is a coup, the next government should bring – though very slowly – the return of the credibility of the country, which should go through a period of cutbacks on money spent and increase in taxes. The real might appreciate against the dollar up to 3.2000, according to some respected economists. At this level, it is reasonable to think that sugar can easily hit 17 cents per pound, which is our estimate for the second semester this year. The escalation of the global deficit, which will be more “tangible” in the last quarter of 2016, can increase the level of the sugar price for 2017/2018 even further. March/2018 can reach 18 cents per pound.
Up until late March, the accumulated sugar export in twelve months over the period between April 2015 and March 2016 was 24,681 million tons. This volume is 1.8% higher than that of the same period last year. Brazil has also exported 2,159 billion liters of ethanol in the twelve-month accumulated, a 55% increase against the previous period taking advantage of the window provided by the devalued real.
It is worth noting that sugar exports in March, which came to 2,078,428 tons, were the second largest in March in history.
Today, the debt of the sector, according to our data research, is R$92,886 billion. The revenue estimate for the 2016/2017 harvest is R$93,062 billion (without taking into account the cogeneration).
If you want to get our weekly sugar comments straight through your e-mail, just register at our site by logging onto https://archerconsulting.com.br/cadastro/.
Have a nice week everybody.
Arnaldo Luiz Corrêa
