The futures sugar market in NY closed the week at 12.25 cents per pound for the July/2018 contract, a 27-point drop against the previous week’s closing, but a vigorous recovery after the turbulence caused by the steep drop in the real against the American currency, pushing the July/2018 contract to the to the level of 11.60 cents per pound, which occurred two weeks ago.
From now on, Brazil will live for a while with the nervousness seen last week due to the discredit toward the national politics, renewed strike threats, uncertainty about the presidential succession scenario, turbulence on the financial market and distrust on the part of the investors.
Federal government intervention in the price policy of Petrobras casts doubt on the future of the sugar-alcohol sector. Ignoring the foreign market laws, signaling with a possible fuel price freeze or control and flirting with cheap populism during election season shows the government hopes that what always went wrong in the past will go right now, when other governments went down that road. A quote attributed to Einstein says that “insanity is doing the same thing over and over again expecting different results”; Brazilian politics is an inexhaustible source of insane people.
They dealt with the striking truckers, but they forgot to explain to the market that truck financing at subsidized interest rates in the previous government caused the truck fleet growth, increasing freight offer in a weak economy. They also did not explain that between the price of the fuel imported by Petrobras and the price paid at the pump there are additional costs and taxes which just about double the import price.
Brasília wanted to choose Pedro Parente as the beast of the apocalypse and the result we saw was the brutal devaluation of the market value of Petrobras, the increase in the legal uncertainty which scares away the foreign investor who is more and more aware that rules are not respected here, foreign capital outflow at the stock exchange, steep devaluation of the real which contributes to the perception that it is not worth investing in the country.
The agribusiness, which has been supporting the country for decades, with tiny margins, now has to hire a minimum freight, way above what the free market was trading at, and will pay for Temer and his out of tune band’s stupidity. For the agribusiness, it is always the market price that counts because that is how commodities work. For the truckers, the populist protectionism of the government is what counts.
The government should and could do something about the country’s tax structure which burdens those who work and produce. But no politician wants to see tax reduction. It is easier to convince rats not to eat cheese.
For the sugar-alcohol sector, the scenario is gloomy. A few months ago, when there was a change in fuel pricing policy, then implemented by the competent president of Petrobras, we said that we were watching a change in the paradigm which would benefit the sector, not with subsidies, but with transparency, making it easier for the mills to have margin lock and price visibility, using the derivatives markets for that.
This dream might be coming to an end. With the bizarre interference of the government and the responsibility transferred to the ANP to set the frequency of the alterations in price after public consultation (??), whatever that means, any investor who was prospecting an eventual entry into the sector, if he has good sense, would step away from it. Eventual expansions of new sugarcane fields are likewise threatened and, the worst of all possible worlds, it puts RenovaBio in check.
We are living a horror movie plot. We started the week hoping it will end quickly. The funds have 25,000 short lots, repurchasing a good part of their positions. Will they continue doing so?
The 30th Intensive Course on Futures, Options and Derivatives – Agricultural Commodities will be held on August 7, 8 and 9 in São Paulo-SP at the Hotel Wall Street on Rua Itapeva. If you plan on taking it, remember that spots are limited and in the last events they ran out 40 days before the course started.
We are happy to inform that Archer Consulting is the investment advisor of the recently-created Archer Commodities Fund, a Bahamas-based “professional fund”, whose core mandate is the negotiation of futures contracts and coffee and sugar options at the New York exchanges. The Fund’s strategy is to acquire directional positions or carry out structured operations of volatility which allow the management of their financial risks. The manager of the fund is TWG Investment Manager LLP, Watford-based in England, whose portfolio has the management of the products of the Banco Paulista S.A. and the high-quality standard of hiring administration, controlling, custody and auditing companies. Our view on price trajectory and market behavior will be used to provide advice to TWG toward decision-making in the investment fund now created.
The book “Derivativos Agrícolas”, written by journalist Carlos Raices and me, is already available on Amazon Books, iTunes, Google Play, Kobo and Livraria Cultura.
Just log on to the following link:
https://itunes.apple.com/br/book/derivados-agr%C3%ADcolas/id1294585521?mt=11. Good read!
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Have a nice weekend.
Arnaldo Luiz Corrêa
