A combination of several factors has been responsible for the slight improvement on the sugar price on the futures market in NY. A sluggish recovery, by the way, still far from bringing a trend reversal or even cheering up the mills. We have got to keep the focus and not miss opportunities.
It was easy to see on the futures market some acceleration on the part of the mills on the price fixations of their commercial sugar contracts. In several sessions, the market watched a selling pressure which increased and consolidated when the sessions came upon the closing. This occurred for several days, pointing to price fixation probably combined with advantageous operations of NDF (Non-Deliverable Forward) during the day when the real had devaluation peaks.
The news about drought is worrisome. It is becoming a consensus, especially in São Paulo and in Minas Gerais, that the sugarcane harvest is jeopardized. Our estimate, published last week, is 563 million tons of sugarcane. During the week, other estimates with the same credibility were released and are close to this number. Some companies, however, internally, work with a more reduced number, waiting on the confirmation from their respective agricultural areas.
The funds have reduced their short positions by 45,000 lots, while producers have certainly added more sales along the screen and, not surprisingly, sharpen their pencils to start fixing something for 2019/2020 too, although it is believed that the sugarcane reduction this harvest will repeat itself next year, drying up the availability of sugar on the part of Brazil even more.
The truck drivers’ strike has lit up the warning sign, but it looks like the situation is working itself out this weekend and it should be history when NY reopens on Tuesday. In terms of FOB discount, there has been no change due to the strike. Lots of mills run the risk of putting the operations on hold due to the lack of diesel. Few mills still have fuel to operate next week. If the strike goes on, NY can test new recent highs. On the other hand, what is worrisome, or at least, slows down the price recovery, is the 4.5% drop of the oil market this Friday.
Temer’s government showed an incredible ineptitude in negotiating with the strikers and accepting the temporary decrease in the diesel price, another subsidy that taxpayers will have to pay for. What the Brazilian population does not understand is that the taxes and the resale margins make up nearly 60% of the value that is traded at the pump.
A black swan is hovering over the sugar market: if by any chance the president of Petrobras decides to step down for not agreeing with eventual government interference in the fuel pricing, we run the risk of seeing Petrobras fall into the hand of amateurs again (to say the least) and, who knows, return to the socialist regime of prices that bled the Brazilian state-owned company and hurt the sugar-alcohol sector. It is always good to remember the ruthless words of the economist, diplomat and minister Roberto Campos, “stupidity in Brazil has a glorious past and a promising future”.
Forty percent of the spots for the 30th Intensive Course on Futures, Options and Derivatives – Agricultural Commodities are already sold. The course will be held on August 7, 8 and 9 in São Paulo-SP at the Hotel Wall Street on Rua Itapeva. If you plan on taking it, remember that spots are limited and in the last events they ran out 40 days before the course started.
The book “Derivativos Agrícolas”, written by journalist Carlos Raices and me, is already available on Amazon Books, iTunes, Google Play, Kobo and Livraria Cultura.
Just log on to the following link:
https://itunes.apple.com/br/book/derivados-agr%C3%ADcolas/id1294585521?mt=11. Good read!
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Have a nice weekend everybody.
Arnaldo Luiz Corrêa
