The sugar futures market in NY has had its 42nd session stuck within the 12 to 13–cent-per-pound range. A stronger dollar against the real has driven the mills to fix their export sugar way beyond the price curve which represents the current harvest of the Center-South (from May/2019 to March/2020). And, as we have seen recently, some mills have also rolled over a good amount originally destined for fixing against May/2019 for the following contract (July/2019) paying a roll-over at a cost close to 5% per year (too low) and gaining more time to fix sugar.
Last week, sugar in NY dropped 48 points, or more than 10 dollars per ton, a very weak performance for those betting on the recovery of the market. Ethanol, after having increased by 15% in the second week of April and another 5% in the following week, plummeted due to the huge selling pressure and many mills wanting to take advantage of the high prices that even hit 200-250 points above the NY equivalent.
What astonishes the traders is the weakening of the May/July spread in NY,which goes totally against what was expected from a market that should have shorter sugar availability in Brazil and, as far as ethanol goes, shows an increasing and vigorous consumption for this year. Besides, oil is rising (despite Trump’s tweeters), which allows gas in Brazil to have room to go up as well.
According to some traders from the physical market, the weakening of the spread can just be reflecting some big sugar giving up to take delivery when May matures, which will happen next week. Well, but if the market is short, how come the recipient would give up on getting sugar? Sugar would be from another origin and would make the recipient’s logistics difficult (who had thought he would get sugar from Brazil). With this thesis in mind, the recipient gets rid of his long position in May by reselling it on the market and repurchasing July; this movement makes the spread widen.
The funds are still short, now with a little more than 58,000 contracts – with no surprises there. Crystal sugar on the domestic market is also at levels of R$68-70 per bag. If we want to see NY break the 13 cents per pound, sugar on the domestic market will have to go up firstand so will the export premium. The market is waiting for some break.
The 32nd Intensive Course on Futures, Options and Derivatives – Agricultural Commodities will take place on August 27 (Tuesday), 28 (Wednesday) and 29 (Thursday), 2019 in São Paulo, SP at the Hotel Wall Street near Paulista. Don’t leave it to the last minute. Over 1,000 professionals have already attended it and they consider it to be the best course on agricultural derivatives in Brazil.
Have a nice weekend.
Arnaldo Luiz Corrêa
