There was such a lack of enthusiasm in the futures market sessions of sugar in NY that the week doesn’t seem to have existed for the commodity. The futures contract for July/2019 closed Friday’s session trading at 12.22 cents per pound, a sharp 53-point fall in the week, a little over 11.50 dollars per ton. The number of contracts traded during the week also fell by 42% compared to the previous one, giving an idea of the pale behavior of the participants.
The sugar closing value converted into real per ton by the exchange rate released by the Brazilian Central Bank determines R$1,073 per ton FOB, a fall of more than 5% against the value in real per ton seen the previous week. These price levels in the Brazilian currency drives the mills away from wanting to fix their sugar and strongly feeds into the will to roll over their fixations maturing in July to October, taking advantage of the carry fee which is close to 8.5% per year.
It looks like only Thailand dared fix its export commitments even offering almost 5,000 lots for sale at Friday’s session which must have triggered the algorithms and high-frequency traders and helped knock the market down, hitting stops. The market slipped and closed the session at the lowest point in 11 trading days.
In the physical, we believe that the NY market, especially July/2019, which expires next week, reflects the possibility of physical delivery of unwanted sugar, coming from Central America and, therefore, brings instability on the prices. In our view, the fair sugar price for late June would be 60 points better than it is being traded at now. However, the distortion comes from two fronts: steadfast conducting of funds, which still call the shots and interfere with the trajectory of the prices with their remarkable short position of more than 100,000 contracts, and the volume of sugar from unwanted sources which must be delivered on next Friday’s expiration.
The consumption of Cycle Otto fuel over the first four-month period of 2019 (ANP data) was 17,405 billion liters, a small growth of only 1.08% against the same period last year. However, upon analyzing the 9-year curve, from 2010 up to now, we can see that the yearly growth shows a 3.5%. If the consumption grew at this 3.5% pace over the next years, there wouldn’t be enough sugarcane to meet the ethanol demand for the direct consumer (hydrous) and for the mix with gas (anhydrous). The sector needs to expand, but there is a lack of investments and legal security on the part of the foreign investor. The approval of the welfare reform can improve this perception.
According to Archer Consulting’s survey, the gas price at the pump is in line with the foreign market price, with a small 2.4% premium.
Sugar exports over the last twelve months (from June/2018 to May/2019) reached 19,768 million tons – a sharp 26.5% fall against the same period last year. The average price of the exported sugar over this period was 291.44 dollars per ton, an average of 12.69 cents per pound. This value involves raw sugar and white sugar. The NY average closing price over the same period was 12.12 cents per pound.
Ethanol exports over the period of June/2018 to May/2019 reached 1,778 billion liters, 26.7% above the same period last year. The average price of exported ethanol over this period was 507.18 dollars per cubic meter. If Brazil keeps this volume for the current harvest, will we have enough ethanol to meet the North/Northeast needs, assuming that corn ethanol import is prohibitive?
Last week started out with another Ethanol Summit, one of the most important events of the world aimed at renewable energies, especially ethanol and sugarcane byproducts. UNICA hosted the first one in 2007 and the event takes place every two years. As usual, the level of the discussion panels was very high and journalist William Waack’s coordination is absolutely exquisite. Too bad the chosen venue (Centro Fecomercio de Eventos) didn’t have the adequate structure for the huge number of participants and exhibitors.
Did you know that 1,000 professionals on the commodities market have already attended what they think it the best course on agricultural derivatives in Brazil? Don’t leave it to the last minute – after this one, only next year. 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.
Everybody have a nice weekend.
Arnaldo Luiz Corrêa
