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A NEW AGE OF UNCERTAINTIES
01/06/2018

The futures sugar market in NY interrupted the string of highs it had been having and closed Friday with the contract for July/2018 at 12.52 cents per pound after having traded close to 13 cents per pound on the trading floor (the highest quotation since last March); the sugar market was still able to close the week above last Friday’s price. It remains to be seen how long it will stay there.

The funds reduced their short positions and it is estimated that they are at around 40,000 contracts this Friday. Much of the liquidity which enabled them to get out of their positions was most probably given by the fixations of the mills which saw the prices trading above R$1,000 per ton with the real devaluation. The question the market wishes it knew the answer to is if the funds would eventually become long. Anything is possible, but the chance of that happening on a carry market is more difficult.

The fuel consumption is disappointing. The Oil National Agency informed that the total of fuel consumed over the twelve-month period, from April 2017 to March 2018, was 53.5 billion liters of equivalent gas, a small 0.15% increase against the same period the previous year. The highlight is for the hydrous whose consumption increased by one billion liters over the period, whereas anhydrous and gas A dropped 169 and 458 million liters, respectively, over the last twelve months.

Pedro Parente’s resignation from the Petrobras presidency is a stray bullet in the chest of the sugar-alcohol sector. The fuel pricing policy introduced by Parente in June last year, not only put the company’s cash flow in order but by osmosis, brought predictability to ethanol. With his stepping down – rumor has it attracted by an offer from BR Foods he could not turn down and, who knows, for not being able to bear the political pressure inherent to his post – a gap opens up and increases the uncertainty about the maintenance of the pricing policy on the part of the limping Temer’s government. In his resignation letter, Parente asks the president to keep the transparency policy in pricing.

Unfortunately, the Brazilian Congress is made up mostly of fat rats feeding on bribes, conspiracies, and bargaining. Brazilian politicians have a huge ethical and moral commitment to their own pockets. The loss of privileged information and influence on the appointment of accomplices to occupy boards of Petrobras, hand-picked by political parties to rob the safes of the Brazilian state-owned company, suffered a huge setback after Parente took over the state-owned company and gave it a professional character. This must have bothered the rats disguised as politicians.

This fatal bunch that inhabits the moral sewage in which the Federal Capital wallows costs the taxpayers’ pocket R$12 billion per year (US$3.2 billion). In comparison, the American Congress costs that country’s taxpayers US$4.6 billion per year. Taking into account the GDP of both countries, Brazil spends twice as much as the USA, but the destructive power of the Brazilian politicians doesn’t have any parallel in the Western world.

The greatest risk the sector runs today is not the world’s surplus anymore, but the risk that Petrobras might turn into an instrument of power of this gang again and that the commitment to free market might vanish. In this case, the entire sugar-alcohol sector and any expansion attempts of the sector, even RenovaBio, would be buried with Petrobras. What company would put up its capital to invest or expand under such an undefined scenario like this one?

For the sugar-alcohol sector, a new age of uncertainties might begin now. The sector is again held hostage, just like all of us Brazilian taxpayers, to the violations this gang of delinquents imposes on the country. There is no way out for the sugar-alcohol sector except for supporting in a peremptory fashion the privatization of Petrobras. The presidential candidate pursuing this goal will get my vote. Today, only João Amoedo, from the Partido Novo (New Party) supports this cause. If Brazil ends up in the hands of disguised communists like Ciro Gomes, Marina Silva or any other left-wing fool, forgive the pleonasm, it will sink once and for all.

We can only wish the new Petrobras CEO to be appointed by the company’s Council is aligned with the competent Pedro Parente’s thoughts and market-oriented.

Petrobras’ shares closed the session at the Stock Exchange at R$16.16, a 15% drop, while the BR Foods’ shares closed at R$23.39, a 9.2% high.

The Risk Management Agency (RMA) of the Department of Agriculture of the USA (USDA) announced this week the availability of US$8.89 million to education and risk management training programs. The financing will allow organizations such as universities, cooperatives and non-profit organizations to develop educational and training tools to help farmer and cattle breeders learn how to administer risks and long-term challenges effectively. Meanwhile, in Brazil…

The 30th Intensive Course on Futures, Options and Derivatives – Agricultural Commodities 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!

 

If you want to get our weekly comments on sugar straight through your email, just sign up on our site by logging onto http://archerconsulting.com.br/cadastro/

 

Have a nice weekend.

 

Arnaldo Luiz Corrêa

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