The sugar futures market in NY closed the week practically unchanged, with a slight drop in the first trading months and a slight high in months with longer maturities. Dubai was uneventful in terms of a change to price trajectory. Export businesses are still slow and this slowness discourages funds whose settled position in the week (up until Tuesday) matches up with the volume added the previous week. The smaller the fluctuation, the smaller the interest on the part of the funds since smaller volatility decreases profitability. In short, a dull, lifeless market.
As we have said here, markets like this are ready for a shock. The recommendation is to protect yourself whichever market side you are on. Industrial consumers, for instance, can sell puts and buy calls – maybe between the exercise price of 17-18 cents per pound for puts and 19-20 cents per pound for calls.
The fact is that the market will need to review its fundamentals so that it can stay above 20 cents per pound. The 50-day average of the closings is at 19.94 cents per pound. The last time the market broke the 50-day average was late last October , 10 days after we saw a 150-point devaluation, reaching 200 in 20 sessions. Having no ability to predict the future, I say we should play it safe.
Three months ago, when the real was at 3.4700, it was inconceivable to talk about it getting stronger. The effect on the FOB sugar export was felt. We fell from R$1.545 per ton when the dollar was at 3.4700 to R$1.440 per ton now at Friday’s closing. That is, we won’t find anyone regretting having fixed in real. Some economists think that if social security and labor reforms move forward, the dollar might have the number 2 in front of it again and, in this case, given the oil market, which doesn’t seem to be able to take off, we will see an extraordinary pressure to set prices in NY and a sugarcane production mix more prone to sugar. The fixation volume of the mills (see more details below) which should concentrate on May and July/2017 might hold back the abovementioned price pressure.
Making a long story short, an extraordinary change to the fundamentals will be necessary in order to send the market up above 21 cents per pound. In the same line of thought, if the market keeps moving sideways, the funds might start leaving their long positions (185,000 contracts) and look for happiness elsewhere.
The average prices traded at the sugar exchange in NY from April to June are usually lower than those traded in March. Since 2000, inclusive, this just didn’t happen in 2000 and in 2009 and 2016. That is, I believe we can still see a price peak in March (nothing huge), but then only some extreme and important event can change that. Ladies and gentlemen, place your bets.
We closed the fuel consumption in 2016, in equivalent gas, at a 0.17% fall. It was a pretty reasonable performance considering the 3.5% GDP fall. The hydrous consumption fell 18.8% against 2015 while anhydrous went up 6.59% and gas went up 3.88%.
Curiously enough, we closed 2016 with consumption divided between 45.5% of ethanol and 54.5% of gas, exactly the opposite of 2009 when we were at 54.5% and 45.5%, respectively. This market loss should be put on the Workers’ Party governments. This gang caused losses for the sugar-alcohol sector of at least R$100 billion, which is a value close to the sector’s debt.
The eighth export pricing estimate of the mills on the sugar futures market in NY for the 2017/2018 harvest shows, according to the model developed by Archer Consulting, that until January 2017 12.1 million tons had already been fixed (45.8% of the estimated export). The average price seen was 17.54 cents per pound. In previous harvests, the maximum percentage of accumulated fixation until January was 44% in 2016/2017.
The average fixation value was R$1,538.98 per FOB ton including the polarization premium and considering NDFs (non-deliverable forward). This value is slightly lower than the average values seen over the last two months due to a lower exchange rate , once the real has appreciated against the North American currency. The accumulated average price is 66.99 cents per pound, polarization premium-free, representing a 21.6% increase against the average price of the 2016/2017 harvest and 62% compared to the 2015/2016 harvest.
Put it down on your calendar so you won’t miss the Archer Consulting XVIII Intensive Course on Futures, Options and Derivatives – Agricultural Commodities to be held on September 19 (Tuesday), September 20 (Wednesday) and September 21 (Thursday) 2017 from 9:00 am to 5:00 pm in Sao Paulo, SP, at the Hotel Paulista Wall Street.
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Have a nice weekend.
Arnaldo Luiz Corrêa
