The week was cut short by the Independence Day holiday in the United States on Thursday, and there was hardly any activity based on the trading volume, which shrank by one third, in the week.
The short week wasn’t good for sugar. The sugar futures contract in NY, now the first maturity being October/2019, closed Friday at 12.32 cents per pound, almost matching July price at its farewell late last week. The huge delivery mainly represented by Brazilian sugar (nearly 69%) and Thai sugar (a little over 28%) still divides traders opinion. We will need more weeks to find out its actual impact.
A stronger real against the dollar and oil on a slight fall in the week- with a little over 1%- should pressure the liquidation price of Petrobras, resulting in cheaper gas and, therefore, decreasing ethanol value. But this hasn’t happened. The Cepea/Esalq – São Paulo hydrous ethanol fuel weekly indicator shows R$1.6403 ex-mill, tax-free per liter, which is equivalent to the sugar in NY with a 125-point premium.
Two American interest rate cuts by the FED are expected until the end of the year – some breath for the commodities since the appetite for risk should increase. A 2% interest rates per year doubles the capital in 35 years. A 4% rate doubles it in 18 years; if it gets 5%, it doubles in 14 years. “Let’s have appetite then” could be the funds’ motto.T
Think of a market that needs a shot of enthusiasm? That’s undoubtedly sugar. Since last November we have been going through this slumber, stuck in a sleepy and awfully boring price range. The average price of November/2018 was 12.79 cents per pound. In December, the average price dropped to 12.58. In January this year, it went up to 12.68 and in February, it hit a peak of 12.93 cents per pound. March fell to 12.47 and April experienced a new “hiccup” and hit 12.61. In May, things got really ugly: 11.83. And June closed at 12.44 cents per pound.
Looking at the average numbers, we can get the wrong impression that those who have been rolling over pricing over this period got burned. But it wasn’t quite like that, but they had to be pretty careful and disciplined so as not to have missed the boat. The restricted price range we have had decreases the volatility of the options. In thesis, the funds should repurchase this short position and put the money into more volatile assets (remember that funds like risks).
In December, we had a price range of just 100 points (12.03 low and 13.03 high). In January, the range was 158 points: 11.69 and 13.27 cents per pound, that is, the market presented opportunities for better prices for those who chose to roll over the position. February was awful: 99 points – a 13.50 high and a 12.51 low. March was worse: 80 points, with a 12.88 high and a 12.08 low. April brought a 129-point range; May brought 103 points and June 83 points. We ask yet again: why do the funds still insist on keeping their positions short?
ANP published the fuel consumption for May/2019. It was a little over 5 billion liters, almost the same number as for April, but 14.54% above May/2018. In equivalent gas, however, the increase was 11.54% against the same month last year. Hydrous ethanol was the flagship, increasing 41.27% and getting to the twelve-month accumulated at 21.8 billion liters, the greatest accumulated consumption in history. The bad news is that the total consumption in equivalent gas for the last twelve months has dropped by 0.63%. The good news is that the accumulated consumption over the first months this year is 3% higher than that of the same period last year.
Last week I gave an interview for the Futures Market program, hosted by the veteran journalist Antônio Reche. We talked about derivatives and risk management and, unfortunately, how we are still crawling as far as this process is concerned. If you want to check it out, this is the link: https://youtu.be/7rlj9iEOdzA
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 in 2020. 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
