The sugar futures market in NY closed out Friday’s session with the two first maturities, October/2020 and March/2021, appreciating by 26 and 15 points respectively, closing out at 13.03 and 13.53 cents per pound.
The dollar appreciated by more than 5% against the real in the week, closing out at R$5.5600. Hence, it makes way for gas price increase and, therefore, it improves ethanol price which will eventually narrow the arbitrage with sugar. However, based on B3 ethanol contract (former BM&F), hydrous is trading at around 200 points of discount against sugar in NY.
Due to the drought, Thailand expects the greatest reduction in sugar production over a decade. The numbers show a production between 7.1 and 7.25 million tons. However, with Brazil partially getting back its market share and Covid-19 responsible for a world consumption downturn of more than 3 million tons of sugar, it’s hard to believe sugar prices in NY can respond positively to that country’s situation.
The numbers released by UNICA about the first two weeks of September/2020 point to an accumulated production of sugar of 29 million tons, a 45% increase against the same period of the last harvest. Over the past five harvests, the total accumulated production of sugar in the first two weeks of September represented 72.9% of the total of sugar produced in that harvest on average. If we take the last ten harvests, the difference isn’t that big: 71.8%. So, can we infer that the total sugar production will come to almost 40 million tons?
No, we cannot use this logic, because the crushing will suffer a great reduction – according to many agronomists – from late October on. Archer Consulting estimate for this harvest, published on April 11, 2020, pointed to 35.8 million tons of sugar. The market believes in more than 37 million tons today.
The contract for September/2020 expires next week and with it the speculations about the delivery. The market mentions between 1.0 and 1.5 million tons of sugar. The export physical market has seen an improvement on basis, according to some brokers, narrowing 10-15 points.
The funds bought more than 35,000 lots in the week reaching a long position, based on last Tuesday, of 172,279 contracts. Over the period the market went up 81 points, or about 438 contracts for every point of increase. Before that, the funds would need more lots in order to be able to move the market that way. This goes to show, or at least seems to show, that the funds have found less resistance (fewer sales being made?) on the way up or the mills are fearful that climate problems might affect the next harvest. This is just some guesswork.
You, dear reader, who follows our weekly comments, who studies the futures, options and derivatives market and focuses – though erratically – on books and reports to understand the nuances of the futures market, should rightly get astonished by the news in the following paragraph. Isn’t that a shame?
According to Bloomberg, JPMorgan Chase & Co are about to announce a deal with the American authorities of the CFTC (Commodity Futures Trading Commission), independent agency of the government that regulates the futures markets and commodities options of about US$1 billion through manipulation of metal and treasury bonds on the market. The deal would put an end to the investigations of the agency. One of the “strategies” used is called spoofing, which consists of flooding the derivative market with orders that the traders don’t plan to execute, but do so to lead the market to a certain direction and profit out of it. Of course, it’s not forbidden to give an order and then cancel it. The thing is this kind of order is illegal because it’s part of a strategy to cheat other traders. It’s gotten more and more difficult for the market professional to look at the value being traded on the screen and tell whether that value is fair or manipulated.
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
You all have a wonderful weekend.
Arnaldo Luiz Corrêa
