With the futures sugar contract in NY for October/2016 expiring this Friday, 750,000 tons were delivered. I’d say the delivery was a non-event. The only noteworthy thing about it is that the same trading company which has received a substantial volume of sugar at the exchange over the last five or six deliveries was the one which delivered the most on this expiration. I don’t think someone can notice this delivery on the part of the trading company as being a bearish factor, mainly due to the fact that with the JV it has with a large producer group, delivery can be just an arrangement that meets the trading needs of both parts.
October closed at 22.53 cents per pound, a 40-point high against the previous week. Price fixing based on this Friday’s closing and using the Central Bank’s dollar rate points to R$1,683 per FOB ton, a very high value. March/2017, which now is the first trading month, appreciated 23 points. All the other months closed with a slight 5-point upwards variation until a 9-point fall.
“Oh, if only I had waited a little longer”, a mill trader complains about having already fixed great part of his exports. It doesn’t pay off to look at the market in the rearview mirror. No trader will hit the nail on the head that way. The important thing is to fix good prices when the opportunities arise and thus disciplinarily build a very profitable average. Companies with a restricted credit limit due to their balance sheet have been luckier, for they can only fix prices with trading companies when delivery is approaching and, therefore, have been able to obtain better prices in cents per pound than the companies with financial tranquility. These are ironies of the market.
I’m wary of markets that, though fundamentals show prices should uphold themselves, shoot up rapidly and drop just as quickly withing minutes. The sugar market had two huge variations (high minus low in the day) in September – 175 points and 142 points – and volatility also went up. Risk perception has increased. Meanwhile , the non-index funds are 348,000-contract long, the equivalent to 17.7 million tons of sugar and are making a lot of money off of sugar. The quarter is over and I wonder if the funds will take this profit now.
We have reasons to believe the market should set between 22-24 dollars per pound. However, as it always happens on the commodity market, we couldn’t rule out a sudden increase in prices fed by an eventual panic on the part of those who still haven’t been able to cover their needs on the physical and on the part of repurchases of positions to meet eventual wash-out operations. Margin calls may trigger out-of-the-money call purchases. Curiously enough, 5,000 lots of call at an exercise price of 24.50 cents per pound, referenced in March/2017, but expiring in December/2016 were traded this Friday. The insurance price to ward off uncertainties, in this instance, was close to US$3.7 million.
September closed at a NY average closing price of 21.35 cents per pound against our 20.61- cent- per- pound estimate, according to the price model. This performance, better than what we had expected, can be a sign that the market has already anticipated the price hike we had projected for this year’s last quarter, that is, 22.42 cents per pound for October, 22.54 for November and 23.44 for December. Let’s see how it all plays out.
According to the numbers released by the National Oil Agency, fuel consumption in August/2016 in equivalent gas was 4.48 billion liters, the largest monthly consumption since March this year. The twelve-month accumulated consumption (September 2015 to August 2016) reached 53.18 billion liters, a 1.72% fall against the same period last year. If consumption keeps going at this pace, we could end 2016 with only a 1% retraction against last year, which is a whole lot better than the most optimistic analyst could see coming.
The political risk in the United States, with an eventual win of the Republican candidate, can heat up the oil market and the other commodities, and have a positive effect on ethanol arbitrage versus sugar. The debate between Hillary and Trump has shown that the lack of outstanding leaders is a global phenomenon.
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Have a nice weekend.
Arnaldo Luiz Corrêa
