The sugar futures market in New York closed this Friday’s session at 12.51 cents per pound for July/2019, a 41-point appreciation in the week, representing a little over 9 dollars per ton.
The sugar market has been weak for a long time, given that since September last year up to now the average closing price of the first trading month at the NY exchange has been 12.43 cents per pound, pretty close to this Friday’s closing. With a confidence interval of 95%, within the above mentioned period, the closings have been between 10.94 and 13.93 cents per pound. This is a good tip for those wanting to speculate and sell calls and puts out-of-the-money at the exercise price close to the mentioned values, that is, 11 and 14 cents per pound.
May and June are seasonally months when the lowest prices in real per ton are seen all through the crop-year (from April to next year’s May), a phenomenon that has been repeating itself quite often. We have made this study taking the last eight years as a basis and adjusting the values in real per ton by the Brazilian inflation rate represented by the IGPM (General Market Price Index). Except for one-off situations, May and June are at the valley of prices while the last quarter of the calendar year presents the peak.
Interestingly enough, the same study also shows that the monthly variations against the average price found in a determined crop-year swing more strongly at the start of the harvest (April-May-June), are more parsimonious in the next quarter (July-August-September), vary more strongly upward in the last quarter (October-November-December) probably greatly influenced by the perception of the Indian harvest, to finally level out in the last quarter of the crop-year (January-February-March).
This study is an important tool for the hedgers to optimize their pricing, whether they are mills (fixation of sale of production) or end consumers (fixation of purchase of raw material). Evidently, the best thing is for these parameters to be more like an indicator for the manager’s decision-making used together with other important indicators, such as the consumption trajectory, the exchange rate, the correlations between oil and ethanol, among others.
The better the quality of the data we use to make decisions is, the closer we will be to having an above-average performance. Making money on commodities calls for commitment and discipline; now, losing money is a whole lot easier.
The volume of Brazilian sugar exported in the accumulated of twelve months from June/2018 to May/2019 is 19,768,250 tons, the lowest number over a 12-month period since the faraway month of December/2008. That is, Brazil hadn’t exported so little sugar in more than 10 years. If we take into account that the world consumption grows by about 1.56% per year, this number is even more amazing.
In order to have a broader view on things, I’d rather look at the 24-month accumulated to have an idea of how much sugar the world has stopped consuming from Brazil. Over the last decade, Brazil has exported 50.9 million tons of sugar on average over a 24-month period. Today, considering June/2017 to May/2019, this sum plummets to 46.7 million tons of sugar. It’s not the lowest of the decade, but it can go in that direction. The question is what will be the effect on prices, regardless of the high world stocks, when the world realizes that a significant share of the supply of the product is dried up by the producer with the lowest production cost on the planet. There is something really wrong with this market.
Whenever I can attend seminars and congresses in Brazil or abroad about the sugar-alcohol market, I question why we don’t see anyone standing up for the consumption of sugar, today the greatest villain and responsible for all the ills of mankind. Sugar holds the position that coffee, butter (in favor of that so-called thing margarine), egg, meat, among other things, used to in the past – everything about them duly refuted after a few years. Is there no lobby to show the benefits of natural food? I frown on all this frenzy about the “dangers” of sugar consumption. How do you substitute a natural product for another synthetic one and believe your health will get better from it? On the other hand, it looks easy for the food industry to no longer depends on sugar, which is a commodity and whose price swings due to supply and demand, and substitutes it for a synthetic sweetener whose pricing control is more structural. This is just the opinion of someone who has seen this movie before. We won’t have artificial sweetener at home.
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.
You all have a nice weekend.
Arnaldo Luiz Corrêa
