We have had an anxiety-ridden week with the markets waiting on the outcome of the American election that finally gave the victory to democratic candidate, Joe Biden. The sugar market in NY had March/2021 closing out the week at 14.91 cents per pound, some points below last week’s closing. The other months along the curve which runs from May/2021 to July/2023 closed high, fluctuating between six and nine dollars per ton.
The real had an amazing recovery against the dollar, with more than 6.6%, making the average sugar value for the 2021/2022 harvest plummet R$118 per ton over the week and the 2022/2023 harvest shrink R$111 per ton. Now, NY would have to go up 100 points in order to be able to recover the previous week’s same values.
We have been commenting that the Brazilian real is – together with the Turkish currency – the one that has appreciated the most over the pandemic and that at some point this above-normal appreciation would have to be corrected. There is no telling whether the reversal is here to stay, but profit has never hurt anybody. We need to watch how the global market will behave after Biden’s election confirmed.
A stronger real with oil around 40-45 dollars per ton will force Petrobras to reduce gas price at the pump pressuring ethanol. On the other hand, ethanol sales keep recovering and we should have profitable prices over the off-season period due to the prediction of a pretty low carry over.
The balance equation will suffer change in its variables if the path of the real continues appreciating. And the expected mix maximizing sugar production next year might not happen.
The Indian government has hinted that it won’t extend the export subsidy to the crop year that has just started in that country. According to the Trade and Food minister, Piyush Goyal, the subsidies occurred over the last years to reduce the surplus stocks and compensate the mills for sugarcane payment to suppliers.
There is this supply and demand law that says that when the amount supplied of a certain product occurs (Indian sugar that would go to export, but without subsidy will stay home) prices fall. If this law hasn’t been “revoked”, the domestic prices will fall. Rumors over the week had it that the subsidy could be reduced from the current 10,448 to 5,000 rupees.
The funds have finally reduced the long position a little by 17,000 lots. They have 245,000 lots now.
Biden’s victory will force president Bolsonaro to understand that countries don’t have friends, but rather, interests. The damage to Brazil’s image abroad captained by the government has become an alarming chance of the country losing space in the agribusiness leadership – among other reasons – because of the president’s professed anti-Chinese sentiment.
The strengthening of the real is constantly at stake because up to now the government doesn’t have an approved budget for next year, there are no investment public policies, the Economy Minister is a president’s sad puppet, and none of the countless promises of Bolsonaro’s campaign have been fulfilled. What we see is his great taste for confrontation with whoever dares fight his nonsense.
Fortunately, the thriving Brazilian agribusiness carries the country on its back so that our trade partners, especially China, won’t pay attention to the Brazilian president’s lines. Bolsonaro ignores that in 2019 our exports to China came to US$63.3 billion and that in 2020 they have already come to US$53.3 billion. Just imagine the devastation that a possible Chinese embargo on Brazilian products in retaliation to the captain’s rudeness and rants would cause our economy. This damage wouldn’t be bigger than the heritage Bolsonaro will leave to all Brazilians who trusted him, though.
Too bad, but now only in March/2021!!! Take advantage of the last registration days for both totally on-line, live/pre-taped recently-launched courses by Archer Consulting: Essential Course on Futures in Agricultural Commodities and Advanced Course on Options in Agricultural Commodities. More information at priscilla@archerconsulting.com.br
Have a great weekend.
Arnaldo Luiz Corrêa
