The total crushing in the Center-South, according to the bi-weekly report by UNICA until August 16, was 342.6 million tons of sugarcane. If this harvest’s crushing rhythm follows the same pattern of the 2016/2017 harvest whose final numbers, when the harvest closed, showed that the accumulated of the first fortnight of August represented 58.84%, then 2017/2018, in theory, would close at a crushing of 582 million tons of sugarcane.
These are just conjectures, of course, but we have already seen analysts reduce their forecasts for this year. Ours, kept since January/2017, is 586 million tons of sugarcane. We also hear about the sudden death in this harvest, that is, the crushing might end sooner than predicted.
I have always been very skeptical about the numbers that pop up on the market without a thorough analysis. It is worth getting to the bottom of how the world’s surpluses, which are released, are built. What consumption and production are they based on? We have already touched on the difficulty predicting the sugarcane harvest in the Center-South (the numbers range from 580 to 612 million tons of sugarcane), but on the market, we hear about production numbers in India for the next harvest, which starts in October/2018, with three decimal precision. Who are we misleading?
The market closed Friday with October/2017 trading at 14.09 cents per pound, a 34-point high in the week (7.50 dollars per ton). The other months on the NY curve also closed positively, between 20 and 28 points. The sugar futures market has been restricted to a boring price interval.
Over the last 60 sessions, the market varied from 12.53 cents per pound (the year’s low) to 15.16, with the average at 13.79; over the 40 sessions, the interval was between 12.92 and 15.16 cents per pound, with average at 13.99; and over the last 20 sessions, between 12.92 and 14.44 cents per pound, with average at 13.73. Have you seen it? The market is more and more limited to its fluctuations and the averages pretty similar over time. That is, the participants seem to be holding out for a price rupture. If on one hand, the funds are taking profit sparingly, on the other hand, the delayed fixations give a counterpoint and curb sharper fluctuations. Our model estimated that the average price of the NY closings during August was 14.18 cents per pound; it was only 13.80 (we were off by 2.68%).
It would not make much sense for the funds to increase their short positions since the potential for a decrease in prices is limited to various factors. It would be worth then quietly settling the short positions and pocketing the US$300 million which is the profit we estimate out of these operations (keeping in mind that the funds made a lot of money in last year’s high, about US$2 billion). Another aspect is that sugar is the commodity which has devalued the most over this year (28%). Why keep a short position which has so few possibilities of higher gains?
The fundamentals are all out there in the open. Another large sugar delivery on the maturity of the futures contract of October in NY late this month can ultimately put more pressure on the market. The weak dollar against the real and the oil on the foreign market below 45 dollars per barrel (today it is at US$49) can too. A fall in oil would adjust gas price downward putting more pressure on ethanol and, therefore, on sugar. However, we find it hard that the price can break the yearly minimum of 12.53 cents per pound.
On the other hand, oil above 50 dollars per barrel, the worsening of the energy market due to the problems in Florida and a weakening of the dollar against the other currencies, makes the investor a more avid commodities buyer. The yellow light for this recovery is exactly the delay in pricing, on the part of the mills, for the 2018/2019 harvest.
The market continues trying to trace the fluctuations in gas price by Petrobrás trying to understand and identify the criterion the state-run oil company is using for the daily price corrections. What components make up this intricate formula? In any case, there is no denying that the introduction of this policy will be extremely beneficial in the mid- to long-term. It’s starting to provide transparency and encourage eventual investors to take a fresh look at the sector.
Former minister Palocci’s statements about the promiscuity which prevailed between the republic presidency (Lula and Dilma) and Odebrechet construction company which, according to Palocci, over the last days of Lula’s term, made R$300 million available for “the advocate of the poor”, “the most honest man in the world” and “the warrior of the Brazilian people” are appalling. Lula, Dilma and the other scoundrels who made up this criminal organization turned the country and the institutions into a roadside brothel. This pack of wolves never thought about the real and urgent problems of the country for a second, but just about how to obtain advantages for themselves and steal everything they could in a voracious way. It is too naïve to think that a former minister kept R$51 million, seized by the Federal Police, in an apartment and that the infamous two presidents have nothing to do with it. Meanwhile, in his electoral tour across the country, supported by a subspecies of Perissodactyla mammals that drool over the nonsense that comes out of his mouth, the despicable former president believes he will run in the 2018 elections. He will be behind bars and we will celebrate this occasion a lot. If we were in Fidel’s Cuba, which the hypocrites admire so much, their fate would definitely be the paredón.
Put it down on your calendar: the XXIX Course on Futures, Options and Derivatives in Agricultural Commodities will take place on March 6, 7 and 8, 2018 in São Paulo, SP at the Hotel Wall Street. The registrations will soon start. Don’t leave it to the last minute because the spots for the current edition ran out 40 days ahead of time.
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Have a nice weekend everybody.
Arnaldo Luiz Corrêa
