The futures market in NY closed the week at a slight fall for October/2016 – at 19.99 cents per pound on Friday against the previous week. A 19-point downturn while March had just an 8-point one. The other maturity months closed with very small positive and negative variations. Actually, the market hasn’t done much over these last two months when the average volume has been ridiculously low. Summer vacation in the Northern Hemisphere. Life begins to get back to normal after the Labor Day holiday in the USA. The trading week has been shortened due to the American holiday and the Brazilian Independence Day – September 7 – holiday.
Note that the average of traded contracts both in July and August has been 87,000 lots in the former and 85,600 in the latter. An extraordinary fall if compared to June which traded 191,000 per day on average. September has started with an average above 180,000 traded contracts per day. The funds have liquidated a very small share – about 15,000 lots at an estimated total position of remaining 315,000.
The October/November spread, which has reached 70 points, hasn’t helped much, signaling that the export sugar physical market is weak and that we should have a substantial delivery against October, which expires in 14 working days. Up until then, the spread trend will show us the extent of the sugar delivery.
This year’s fuel consumption pattern seen in the accumulated up until August shows we should end the year at an equivalent fuel consumption at 52.9 billion liters, a 1.3% decrease against that of 2015 and practically leveling out the 4-year long consumption (from 2013 to 2016) pretty close to 53.3 billion liters per year. This has been the first time, since 2014, the 12-month accumulated Otto cycle consumption has dropped against the same period last year. This will give you an idea how big a depression Brazil has been going through thanks to the incompetence of the impeached president, Dilma Rousseff.
However, if the economists’ forecasts that the Brazilian economy should grow by about 2% in 2017 prove to be accurate, then we can expect fuel consumption to follow that percentage.
We believe the 2017/2018 harvest (Center South and North/Northeast), based on the global sugar consumption and domestic sugar and ethanol consumption, will have at least a 30-million-ton deficit of sugarcane.
The foreign market hasn’t entirely appraised what this deficit will bring to prices. It’s still early and a lot of things can happen. The worst thing that can happen is the trajectory that oil price might take next year: below 40 or above 60 dollars per barrel. That’s where the equation that can change the magnitude of the sugar price development is.
The real is still susceptible to the national political environment – maybe scared of the demonstrations against President Temer. The Left still has money to finance the protests thanks to the public money they stole over the thirteen years they were in office. We will still have a lot of protests and strikes before this gang’s money runs out.
For those thinking about fixing in real, it is important that they take advantage of these spasms the dollar has had and fix prices for 2017 and 2018. The price record for the first maturity (NY closing times the dollar rate according to the Central Bank closing, times 22.0462 – to convert cents per pound into dollars per ton, plus the polarization premium) was 1,583 real per ton in July 5.
If you still don’t have the “Agricultural Derivatives” book, written by me and journalist Carlos Raíces, download it for free by clicking on https://archerconsulting.com.br/livro/
The 26th Intensive Course on Futures, Options and Agricultural Derivatives to be held on September 27. 28 and 29, 2016 from 9:00 am to 5:00 pm in São Paulo, SP starts in 3 weeks. For further information, contact priscilla@archerconsulting.com.br.
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Have a nice weekend.
Arnaldo Luiz Corrêa
