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Sugar

SUGAR DROPS BY 16% IN NY AND JUST BY 1.4% IN REAL IN THE YEAR
14/12/2018

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The sugar market is in a Holidays type of mood even if there isn’t much for the mills to celebrate. Nothing worth pointing out has been happening over the last sessions and the price trajectory of the futures contracts in NY is much more due to the algorithms moods and their wonderful robots than the eventual impact of any fundamentalist news.

Sugar says goodbye to 2018 melancholically, at least according to the accumulated performance up until Friday, with a drop of more than 16%. In real per ton, however, the drop has been much smaller. At the end of last year, the market went beyond R$1,153 and this Friday it was at R$1,137, that is, a 1.4% drop only.

This week NY closed Friday with March 2018 pointing to 12.67 cents per pound – a 20-point fall against the previous week. The business volume is disappointing showing that the decision makers are either on vacation or have something more important to worry about. The funds keep a short position at 28,500 lots, reducing 9,000 lots against the last report.

The sector challenges for 2019 are great regardless of the scenario having a constructive bias for the prices, supported by the possibility of sugar consumption increase on the domestic market (through GDP growth) and by the fuel consumption recovery, flattened by the high gas consumer price and by the natural retraction due to the stagnation of the Brazilian economy.

We depend on the path that the oil price on the foreign market will take in conjunction with the behavior of the Brazilian currency. This duo will dictate the change in the sugar price level and put the flexibility of the production mix, which today is much more adaptable after consistent investments made by the mills over the last years, into practice.

There are numerous variables in the equation which will determine the sugar trajectory. But carefully looking at those considered most important leads us to swing to the more positive side as far as prices are concerned. It seems like oil abroad has found support around 54 dollars per barrel after the Saudi decrease in production and reduction in stocks. Although there are mixed feelings about the energy market, many analysts believe that we have already seen the WTI and Brent oil price lows.

On the other hand, consumption slowdown in China – along with a not very optimistic number for that country’s industrial production – makes the yellow light come on for the commodities in general. The contamination of the market due to too much pessimism can get in the way of an eventual recovery of the soft commodities.

We believe that Brazilian sugar exports in the current harvest (April/2018 until March/2019) should reach 19.6 million tons, a huge 30% drop against the same period last year. That is, an 8.2 million-ton reduction in Brazilian sugar availability for the world. Can this number repeat itself without any change in current price levels? I really doubt that.

Having worked for more than 40 years on the commodities market, I had never seen such wealth of predatory over-the-counter operations randomly offered to the agri-business companies. It is not just an isolated case anymore nor can we say that there is bad faith or not. However, the several stories I hear from the participants themselves often show the consumer fixed way above the market and the producer way below the market. It is either greed on the part of those who offer or ignorance on the part of those who accept them or maybe it is just a coincidence…

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Receives weekly comments from the market