And the sugar market in NY closed the week at a high again. July/2016 closed Friday at a 45-point appreciation against last week, or about 10 dollars per ton, reaching 17.52 cents per pound – the highest price traded since July 9, 2014. In real, however, taking into account the adjustment price and the exchange rate of the Central Bank, Friday closed at R$1,450 per ton – the highest nominal value in history, but still 25% lower than the highest inflation-adjusted traded value.
A buying pressure occurs in months with shorter maturity, which shows there are a lot of “regretful” people for either not having bought the market or for not having covered their short positions or even for having fixed earlier. That’s nonsense. The mills that fixed shouldn’t feel that way because nobody could have guessed where prices would be at today and, because of a matter of planning, if the price fixation was paying exports accordingly, there’s no reason for whining. After all, nobody goes bust with profit in the pocket.
The truth is that, according to an executive from the sector, “the bears were painfully horned by the bulls”. The trading companies buy the spreads adjusting the books to continuously strengthen the market which is outlined on shorter maturities exactly when the funds, in theory, prepare to roll over their huge long position of 284 thousand lots. The July/October spread valued by 10 points in the week while October/March went up 17 points.
It’s true that not even the most optimistic analyst could have foreseen we would have the sugar market in NY going up so strongly right now. We were counting on 18 cents per pound in March/2017 by around the last quarter of this year. However, with a little help from the non-index funds, the market has gained impetus and keeps on achieving new price levels.
Marcos Masagão, Future Analysis Consulting CEO (www.futureanalysis.com.br), partners with Archer Consulting, has kindly informed us that, according to the exclusive model developed by them, the funds in NY are long by 14.29 cents per pound on average. That is, given the current market values, they are making more than US$1 billion.
Some traders have secretly confessed they are short on an ascending market and were hoping to cover their directional positions in the futures in case of an eventual market correction, which didn’t happen. There might be some logistics problems with sugar shipment through Santos and Paranaguá ports due to the overlapping with soy shipments at some terminals. Today there is a line equivalent to 2 million tons of sugar to be shipped – this is twice as much the volume there was over the same period last year. So, though shyly, the basis has appreciated. Soy exporters are taking the opportunity that the grain prices are high, and shipment volume should increase competing with sugar for precious terminal room.
Over the last sessions, the traded volume of puts has exceeded the volume of calls and volatility has gone up. Selling puts to decrease acquisition cost? Fences protecting eventual market high (by selling out of the money puts and calls). This can be a solution for those who want to take advantage of a significant market high. But remember there are risks to be monitored and mitigated.
One of the rare bears seen over the week during sugar week in NY is the same one everybody knows and is bearish by nature and because he owns a refinery. OK. Even with a hand with a pair of two’s sometimes it is necessary to bluff to continue in the game. “Flop” doesn’t look promising. We have already heard demand would disappear at 16 cents per pound. Then that it would vanish at 17 cents. Maybe it will appear at 18 cents, right? The market should correct before continuing its high trajectory. We believe we will see 20-21 cents per pound in March/2017 by the last quarter of this year.
Another positive sign for the market indirectly is the significant improvement of the oil price to over 50 dollars per barrel. The average price of gas (for the consumer) in the world is at US$0.99 per liter.
Out of the twenty largest company debts which have gone into judicial recovery, seven are from the sugar-alcohol sector and come to R$9.3 billion, that is, one tenth of the sector’s debt.
Eight out of the ten best administrators of hedge funds with the best performances of 2015 rely on what their mathematical models tell them to buy or sell. Only two of these funds effectively use human brain.
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Have a nice week and good business deals.
Arnaldo Luiz Corrêa
