The sugar futures contract for May/2021 closed out the week at 15.19 cents per pound at the NY exchange, a sharp 58-point fall equivalent to 13 dollars per ton over the week.
According to data published by the CFTC, the non-index funds liquidated 28,000 lots which reflect their positions last Tuesday. According to the range between the two Tuesdays, in order to simplify reasoning, the market fluctuated 123 points, that is, each point it fell demanded sales of 228 contracts. The market pressure, of course, was intensified with the sales caused by robots, algorithms and others. I don’t see why the funds wouldn’t continue to liquidate a still financially successful position.
It’s worth remembering that India sped up its sugar export records (4.2 million tons) taking advantage of the high prices seen in NY 30/45 days ago. The sugar fundamentals prevent prices from staying above 16 cents per pound – as we have said many times here – unless there is some exogenous factor, which hasn’t occurred so far.
Current prices, considering the devaluation of the real by almost 5% in the accumulated over last week (R$5.7584), place the 2022/2023 crop in the months it covers at an average price of almost R$1,900 per ton for the Brazilian mills. For India, the break-even price for raw with the subsidy is 14.75-15.00 cents per pound, below the current level of NY. The market has more room to reach 14 cents per pound than we could imagine. But the support might happen further down the road.
It’s important to say that India is an extremely dependent country on oil and natural gas, importing about 75% of its need. Along with China and Iran, it is among the five countries whose nominal oil consumption has sped up the most over the last years. In absolute volume, the country is the 3rd in the world in consumption of primary energy (oil, natural gas, coal, nuclear, hydroelectric and renewable energies) being just behind China and the United States, but grows at a 5.2% rate per year, above the two first ones. Besides, the per capita energy consumption in India grows at a yearly rate of 4.0%, while the world average is 0.4%. The country imports nearly 10% of all the oil traded on the world market.
If not for this alone that India should increase the participation of fuel ethanol in the mix with gas. Saving dollars on oil import and offsetting part of the subsidy it gives to sugar are the most visible benefits on top of the reduction of CO2 emission and the effects on public health. The question is what percentage and how fast this migration will occur. India is one of the few countries that, together with Indonesia and Pakistan, help with the steady growth of per capita sugar consumption associated with a robust population growth. The three countries will be responsible for at least 1/3 of the projected increase in world sugar consumption, which should be 1.15% per year, for the next five years.
On the whole, the fundamentalist picture in sugar over the short term is weaker. The economies are dwindling and the growth forecasts in Brazil, for example, already put the fleet of light vehicles and the consumption of Otto Cycle fuels on the spot. Oil out there will need a lot of ship grounding in the Suez Canal to stay above 60 dollars per barrel. Prices only get better with the help of extra-fundamental factors.
No, this is not a broken record.
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The elite of Brazilian entrepreneurs, and lots of them from the agribusiness, starts to get off the Titanic on the way to the iceberg Brazil has turned into, having a crazy pathological liar in charge. Together with it, the Brazilian voting bloc “Centrão” – that old and worn-out group of political parties whose only ideology is to stay close to the central power so that it can perpetuate the advantages and privileges it feeds on. As a political analyst has put it, the “Centrão” can even go to the funeral, but won’t hug the drowned victim. The drowned victim in question is the tenant of the “Palácio do Planalto”. With a speedy decline in popularity and followed more and more by fewer and fewer people, with real chances of having the Brazilian Al Capone as an opponent in the 2022 elections, both the Brazilian elite (here considered in the literal sense the word) and the Congress will have to find a third route to try and drive Brazil away from the two grim alternatives: have a horrible end or an endless horror.
You all have a great weekend.
Arnaldo Luiz Corrêa
