The sugar futures market in NY still shows huge weakness recovering and a lot of difficulty breaking the boring interval of prices – between 12 to 13 cents per pound – it has been trading at for weeks, leading us to think that the commodity is doomed to stay like this to the end of time.
The foreign macro scenario has been helping the sugar market to recover from recent falls it has had. Good news linked to the sugar fundamentals, which from time to time reach the market, is immediately overshadowed by the spate of problems coming out of the detrimental domestic and foreign scenario particularly last week.
The significant improvement of the sugar fundamentals hasn’t done any good. For example, there is some agreement by a large number of the market professionals that the amount of the Center-South crushing for the harvest starting now will be, at best, the same as the volume crushed last year. The oil price, after being around 43 dollars per barrel late last December, scaring the mills that were already doing calculations to change the production mix favoring sugar, is now trading close to comfortable 60 dollars per barrel, seeming to drive away the vigorous change of mix that was being foreseen. Some trading companies are already foreseeing that we will definitely have a world sugar deficit next year. In short, the ingredients are ready in the pan, but none of this seems to make a difference.
The world macro scenario had a poor performance this week following the bad number of the German economy, causing part of the investors to pull out of the risk assets, overthrowing the stocks in the USA, making Dow drop 460 points, NASDAQ 2.5% and S&P almost 2%.
On Friday, one of the most important groups of the sugar-alcohol sector filed for judicial recovery. According to market sources, the debt goes beyond R$4.16 billion and an European bank strongly linked to the Brazilian agribusiness is the biggest creditor. Such unfortunate situations like this dry up resources that financial institutions have available for investment, increase the banking spread for the sector funding and make potential investors doubt whether the sector is profitable or not.
I’m not familiar with the situation of the company under discussion and any guess about the subject would be frivolous, but last week, during our XXXI Intensive Course on Futures, Options and Agricultural Derivatives, the group made up of more than 30 students agrees that Brazil is learning the ropes when it comes to risk management. I get excited when I see a new generation of executives extremely concerned about how their companies face the daily risks, sometimes with pretty orthodox solutions, sometimes with pretty creative measures – we have to keep spreading knowledge.
In Brazil, another former president is sent to prison and the real has devalued against the dollar, pressuring the coffee market (one of the most affected) and putting in check the approval of the reforms that Bolsonaro’s government promises to implement. As the late Antonio Carlos Brasileiro de Almeida Jobim, better known as Tom Jobim, would say, “Brazil is not for rookies”.
Have a wonderful weekend.
Arnaldo Luiz Corrêa
