The sugar market in NY closed at 14.43 cents per pound for March/2021 on Friday, just one point below the previous week’s closing. The market has been behaving like a yoyo, trying unsuccessfully with the help from the speculative funds to survive above the 15 cents per pound, but coming up against strong pushback from the fundamentalists.
Brazil continues flooding the foreign market with sugar. In November it shipped almost 3.1 million tons, bringing the 12-month accumulated (December/2019-November/2020) to 29.46 million tons (April-November), the highest level since September/2017. In this harvest, the accumulated total is 23.68 million tons (April-November), 10 million tons of sugar more than the same previous period, which was 13.2 million tons. This is not a flood; it’s a sugar tsunami. Brazil has been replacing Thailand and other producers’ absence with a large margin.
The funds, however, continue holding a long position of 212,680 lots, according to the numbers released on Friday by the CFTC based on the previous Tuesday’s position.
There is still a long way to go until the March contract expires, but I believe as of mid-January the funds will start thinking about rolling over this huge position to the next maturity, which is May/2021 or, alternatively, liquidate it. I wonder who the buyer of this position that is to be rolled over or liquidated will be. For the funds, the satisfactory reversal of this long position will have to rely on a strong change in sugar fundamentals.
The Indian subsidy between 6,000 and 7,000 rupees per ton (about US$100), slightly below the 7,800 rupees we had estimated here a month ago, is about to be passed. That way, assuming that the minimum price in that country stays at 31,000 rupees per ton (US$420) which – let’s face it – given the extreme fiscal crisis India is in, is a challenge, the break-even point for export is now 15 cents per pound. Quoting Churchill, a reader commented last week that the sugar policy in India is “a riddle, wrapped in a mystery, inside an enigma.” Let’s see whether we will have gotten this issue sorted out by early next week.
The Brazilian real, like most currencies of the emerging countries, keeps appreciating against the dollar and closed out the week at R$5.0632, gaining 1.25% compared to last Friday. So, of course, sugar quotations converted into real per ton have also experienced a reduction which ranged from R$28 per ton in the May/2021 contract and R$16 for the 2022/2023 crop period.
It’s interesting to note that the WTI oil contract converted into real is pretty close to the pre-pandemic level, which opens up the possibility of – if there is a consumption recovery in the first quarter of 2021 caused by the introduction of the vaccine – an increase in gas price at the refinery. Petrobras should have a slack of approximately 8% right now. There is, therefore, in our opinion, a reasonable chance that ethanol prices will stay above the average over the first quarter next year and the parity (which today shows a discount of 200 points against sugar) will narrow.
The exports of the sector (sugar and ethanol) over the last twelve months have reached US$9.52 billion, the greatest since June/2018. The record, however, is June/2013, when the amount exported by the sector came to US$16.46 billion.
Archer Consulting will promote its next online courses in March and April/2021. Both new introduced modules got very good evaluations by the participants. The Essential Course will be held in the week of March 22 and 26. Now, the Advanced Options Course will take place in the week of April 5 and 9. The sooner you sign up, the larger the discount will be. For further information, contact priscilla@archerconsulting.com.br
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Sergio Porto was a journalist, writer, broadcaster and humorist from Rio de Janeiro, a former employee of Bank of Brazil, who used the pseudonym Stanislaw Ponte Preta. He was a topnotch mocker and wrote ironic chronicles, caustic criticisms and real jokes in Rio de Janeiro newspapers back in the 1960’s. Among his successful publications at the time is FEBEAPÁ – “Festival of Nonsense that Sweeps the Country”, where he would report, with his fine humor, the nonsense perpetrated by the then military regime. Had he not died of a massive heart attack at 45 in 1968, Porto would certainly have been locked up by the military dictatorship because of the mockery he would make of it. Today, with all the nonsense coming out of Brasilia and the shameless military authorities who salute our bogus captain, Stanislaw Ponte Preta would certainly be, as before, a best seller.
You all have a nice weekend.
Arnaldo Luiz Corrêa
