The sugar futures market in NY has vigorously bounced back after the falls over the last weeks and ended up closing out Friday at 15.52 cents per pound for May/2021, an 81-point appreciation which corresponds to almost 18 dollars per ton. What might be behind this recovery?
There are rumors that there is a great economic recovery on the part of China, India and the United States that should push the rest of the globe and speed up the consumption of commodities. And here there is more and more talk about the concern on the part of some mills over the sugarcane production loss being a lot greater than what had been predicted earlier, on top of an ATR well below what had been expected.
With the Center-South practically fixed for the crop starting now, some mills fear not having enough good-quality sugarcane to meet the ATR demand that its commitments made in sugar volumes require. That could be, but we will have to follow up on how all these situations play out. It seems to me that the sugar futures market is like the dead cat bounce. That is, a temporary recovery of the market after a sharp fall, but that should keep falling.
We might be totally wrong, but it’s hard to see as an encouraging recovery in Brazil as the numbers in other countries. The continued lockdown (in the state of São Paulo, the wealthiest state, we should stay locked until April 22), the reduction in gas consumption, the stagnation of new vehicle sales and the decreased mobility that will still continue for a long time, lead us to believe that there will be a product surplus.
The expected reduction in production can, then, have a smaller impact because it will coincide with a smaller consumption. The president’s raptures, who once in a while complains about the gas price clearly indicating he wants to interfere in Petrobras, can get in the way of the support of sugar prices. It’s not hard to foresee that the international price parity – practiced by Petrobras since Pedro Parente took over the state-owned company – is always hanging by a thread.
After seeing that on an inverted market, as the sugar market was at the beginning of the year, the stopper of the physical sugar when March contract expired still has vessels to nominate, it’s difficult to remain constructive. The funds supported the upward market above a reasonable level in terms of fundamentals, the spreads weakened reflecting the feeling of the physical traders, and the oil tries hard to stay above 60 dollars per barrel. The American Energy Agency itself estimates that the average price of WTI oil for this year is 57 dollars per barrel and 54.75 per barrel for 2022.
On the bright side (in terms of prices), we reduced the production estimate for the 2021/2022 crop in the Center-South. We applied a reduction of 4.35% in sugarcane production against the 2020/2021 crop (it was 3.75% in the previous estimate), adding up to 574.5 million tons of sugarcane (it was 578.0 million before), for the production of 35,056 million tons of sugar (a reduction of 3,254 million tons against the previous crop) and 24,735 billion liters (sugarcane) plus 3.2 billion liters (corn); 2.06 billion liters below last year’s production.
According to a NovaCana (novacana.com) survey with 15 consulting and trading companies of the sugarcane market, the average of estimates for the sugarcane production is at 584.61 million tons and the sugar production is at 34.58 million tons.
As if all these points that make the decision-making process within the company a hard task weren’t enough, we have a cowardly president, who cannot articulate anything at all and an economy minister who is the blah, blah, blah king; he speaks too much and doesn’t get anything done, another puppet in this ministry where the president call the shots and the suck-ups on call obey. Just imagine the size of the crisis we will face in 2022: a foreign-exchange crisis because of the legal insecurity and the actual possibility of antidemocratic adventures on the part of the Planalto’s dweller; and, a political crisis, in an election year that is bound to have all kinds of rude brouhaha, not to mention the possibility of us closing out 2021 (according to some) with more than 700,000 deaths from covid-19. We need a lot of energy, ladies and gentlemen.
You all have a great weekend.
Arnaldo Luiz Corrêa
