The futures sugar market in NY had an auspicious closing this Friday. May/2016 closed the highly-quoted third week in a row at 15.18 cents per pound, a 35-point high in the week, or almost eight dollars per ton. As we have said here, this strengthening, however, has to be validated by the physical market, whose demand came to a standstill after the sugar delivery of the exchange at the expiration of the contract in March. The premiums for immediate delivery haven’t shown enough endurance yet to strengthen this tendency of high.
The possibility of more rain at the beginning of the crushing period in the Center-South should make the spreads stronger since the delay makes the trading companies repurchase their positions with a longer maturity bringing them to shorter maturities, when sugar demand will be larger. Stay tuned for these movements.
Some exogenous factors that have contributed to the futures sugar market hitting bottom at 12.45 cents per pound were the oil price melting on the world market and the real plummeting against the dollar. Well, this has changed. The real has valued against the dollar due to the considerable increase in the probability of president Dilma Rousseff’s impeachment, her creator’s, former president Lula, arrest and the fact that oil price has gone up 15% on the monthly accumulated.
According to economist Sergio Vale, from MB Associates, “so called Car Wash operation’s new breakthroughs and plea bargains and former president Lula’s political decline have isolated president Dilma”. “The idea that a political change will happen soon brings about the expected positive impacts on the exchange rate and stock exchange”, and according to him, ” there would be room for that further 10% fall in the exchange rate, which means it can reach R$3.2500 if all the political risk decreases. So, there are still some political issues to be worked out of the exchange rate”.
Should the train of thought set forth by the economist come true, taking for granted that the lowest sugar value we have recently seen in NY converted by the Central Bank fee was R$1.140 per ton, then with the dollar at R$3.2500 the floor of the sugar market in NY would be 15.29 cents per pound. This thougtht supports the perception the funds have about staying long on sugar when the commodity was at 13 cents per pound recently.
I believe we will slowly start to see a cycle of high in the world price of the commodity. Besides, simulations made by Archer on world production and consumption for the next 2-3 years show a reasonable chance that we will continue having deficits. Sugar consumption around the world grows at a speed higher than that the producing countries can increase their supply. Brazil, one of the leading producers, sees its ATR supply dwindling for the fourth year in a row in addition to a slight perspective of expansion. Therefore, it’s no wonder that we will have constant deficits (though small) over the next years.
Another relevant factor is Brazil’s cost of production and its competitors’. Today, Archer’s estimate on Thailand’s costs of production is 15.10 cents per pound and India’s 24.47 cents per pound. Australia has a 11.90-cent-per-pound cost and Brazil an 11.25-cent-per-pound cost.
On a different note, we have seen there is a high correlation between average sugar prices traded in NY over the October/November/December quarter and those traded over the following quarter, that is, January/February/March. The resulting adherence when analyzing the last 15 years is 0.9731. So, based on the average price seen in the last quarter of 2015, 14.58 cents per pound, the average price for the first quarter of 2016 would be 14.70. Since the average for January and February, already closed months, was 13.80, March would have to close at 16.48 cents per pound on average to meet the demonstrated correlation.
The seventh estimate on sugar volume for the 2016/2017 harvest fixed by the mills at the NY exchange, collected by the Archer Consulting’s model, is 19,036 million tons of sugar at an average price of 13.62 cents per pound, or its equivalent in R$1,206.25 per FOB ton. The estimate takes into account the fixations made until February 29, 2016.
The volume represents a fixation of about 75.78% of the harvest, taking into account Archer’s estimate of a Brazilian export volume of sugar of 25.12 million tons. The average dollar obtained by the mills is 3.8594 real. The model admits a plus or minus 1.39% error on the established volume and price. Compared to the last four harvests, the accumulated percentage of fixation of 75.78% for 2016/2017 has been the highest ever seen. Last year, for instance, the accumulated for this period was only 34.30%
This Sunday, Brazilians will take to the streets to ask for president Dilma Rousseff’s impeachment. Her term has long ended. The only thing this Walking Dead-zombie-like wandering dead person has to do is step down or wait for her fall. The gang of creeps that took over the country has destroyed ethical values, ruined Petrobras and given good Brazilians a worldwide reputation that they are all corrupt or support this out-of-control clique.
What thirteen years of PT (Workers’ Party) has done to the sugar-alcohol sector, for example, deserves a separate evaluation. A debt that goes beyond R$100 billion, withouth taking into consideration the revenue loss due to the interruption of the expansionary cycle, which let us produce in December 2009 almost 55% of all consumed fuel by the fleet of national vehicles, which would multiply direct and indirect jobs. They are a true cancer that must be yanked out of the national public life.
The registrations for the XXV Intensive Course on Futures, Options and Derivatives on Agricultural Commodities just have A FEW SPOTS AVAILABLE. The course will be given on March 29, 30 and 31 from 9 am to 5 pm in São Paulo. For further information, send a message to priscilla@archerconsulting.com.br
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