The scenes of the huge fires that have hit the sugarcane fields in the Center-South over the past weeks going around the WhatsApp groups are scary. Executives from various mills believe that 2/3 of the companies of the Center-South will end the harvest way before it was estimated – the first week of November at the latest. According to eye witnesses to the fires, “the fire reached the sugarcane fields in their growth phase, intermediate and already ready for harvesting”. The consequences of these fires that wiped out thousands of hectares of sugarcane might be a hard blow for the availability of the graminea for the next 2021/2022 harvest.
The combination of drought, which according to some agronomists will shrink the sugarcane supply by 5% for next year, with the impact of the fires that have claimed growing sugarcane fields, plus the decline in ATR, can translate into downsizing availability by around 2.8 million tons. This is all premature, but it’s worrisome.
I can’t say for sure whether these factors would influence the sugar futures market in NY, but the fact is that the week showed price recovery. Although I believe that the positive and negative news bombarding the market doesn’t seem to be enough to break the narrow price range the market is doomed to be stuck at, the fact is that the week closed out with a futures NY market appreciating 18.30 dollars per ton for the shorter maturity (October/2020) and 16.50 dollars per pound for March/2021. For the months corresponding to the 2021/2022 harvest of the Center-South, that is, May-July-October/2021 and March/2022, the average appreciation was 10.50 dollars per pound, which represents an increase of 75 real per ton against last week.
The funds have reduced 14,676 lots from their long positions selling on the market, but over the reporting period the price fluctuation in NY was negligible. The market seemed to have absorbed the sale of the funds possibly indicating that 12 cents per pound is a good purchase level – just some guesswork. Now the funds are positioned in March and the technical indicators point to continued market strength to be fed by stories of drought and sugarcane reduction. That remains to be seen.
As we have said here several times, our concern over sugar price development in NY comes up against the globally economic downturn and its effect on fuel and sugar consumption, especially in upcoming years. Our estimate for world consumption growth within the next five harvests (from 2021/2022 to 2025/2026) is just 0.7% per year, not taking into account the effect of Covid-19.
Brazilian sugar exports cheer up the bulls. In August, Brazil exported 3.47 million tons, 122% above the volume exported in August last year. In the yearly accumulated, that is, covering the period from January to August, the exported volume adds up to 17.89 million tons of sugar against 11 million tons over the same period last year. In the 12-month accumulated (September/2019 to August/2020) the exports reached 24.9 million tons, 31.5% above that over the same previous period.
In the harvest accumulated (April to August) the exports come to 13.59 million tons of sugar, the greatest volume of the last twelve years. Based on the last harvests and the percentage that the April/August period represented for the crop year, the estimates today would be more than 31 million tons of sugar. That remains to be seen.
Archer Consulting is launching two courses totally online and live: the Essential Course on Futures in Agricultural Commodities, which will be held from November 23 to November 27 and destined for those who need essential knowledge about commodity market operation, and the Advanced Course on Options in Agricultural Commodities from November 30 to December 4. Both will be from 5:00 pm to 7:00 pm through Zoom® and taped for future review. For further information, email us at priscilla@archerconsulting.com.br
Have a great weekend everybody.
Arnaldo Luiz Corrêa
