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DURING THE SUGAR WEEK IN BRAZIL, TRADERS BET ON A MARKET AT 14 CENTS
01/11/2019

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The Sugar Week in Brazil was pretty festive, with several seminars, a wealth of events, mainly the Datagro Seminar, culminating with the Sugar Club Gala Dinner. High-spirited attendees were seen all over the place. The relaxed atmosphere at the parties and meetings was the counterpoint for a world market that is still shrugging off the constructive fundamentals coming from Brazil.

The 10th edition of the Sugar Dinner Brazil, held in São Paulo, was attended by 804 guests, under the direction of the President of the Sugar Club of Brazil, Rui Sabino (who is passing the baton to Carlos Franco at the end of the year), highlighting the honoree of the night, Doctor Plínio Nastari, for the inspiring and passionate speech which touched everyone.

Meanwhile, in NY, the sugar market had a slight recovery over the week, with March/2020 closing Friday at 12.48 cents per pound, a less than 3-dollar-per-ton high against the previous week’s closing. The other maturities which reflect the 2020/2021 harvest in the Center-South closed around a 4-dollar-per-ton high. The volume has dropped a lot because most thinking heads were on their way over to Brazil or busy with guests and business meetings. 

The funds, according to CFTC data published based on last Tuesday, reduced the total short position by only 7,862 lots. They are still carrying 195,086 short sold lots. The market fluctuated only 16 points over the same period. In theory, in order to zero out this huge position, the funds would make the market go up 400 points!!! It’s not quite like that.

Total hydrous and anhydrous ethanol sales by the mills for the domestic and foreign market, in the Center-South, according to UNICA numbers, have accumulated up until the first fortnight of October 18.56 billion liters versus 16.59 billion liters over the same period last year – almost a 2-billion-liter difference in six and a half months of harvesting.

The consumption of Otto Cycle fuels on the yearly accumulated, according to the Oil National Agency (ANP), covering the period from January to September/2019, has increased by 3.59% against the same period of the previous year. Hydrous ethanol consumption has increased by 22.88%. What if the economy grows more than expected?

For example, at the event sponsored by Santos Neto Advogados, starting off the Sugar Week, the lecture given by the economist Ricardo Amorim was filled with optimism towards the Brazilian economy for upcoming years. Amorim believes Brazil will get into a positive cycle. To illustrate his thesis, he presented a chart since 1900 showing the average growth of the GDP every three years and determining that every time the three-year-long average GDP plummeted, some political breakdown would settle in and after that economic growth would reach levels above 5%.

Over the almost 120 years the study covered, such a phenomenon has been seen six times. In 1930, negative GDP with the NY Exchange fall, Getúlio Vargas dictatorship takes over (GDP grows above 7.5% two years later); in 1945, GDP lower than 1%, Vargas dictatorship falls and within 2-3 years GDP grows by 7%. Then in 1964, with a shrinking economy, João Goulart gets ousted and the military takes over. The economic growth explodes with growth above 7% for several years. In 1982, under Figueiredo’s government, there is another breakdown. Negative GDP, the end of the military dictatorship, Brazil gets into the re-democratization process and the GDP goes beyond 5%. Early 90’s, negative GDP, new breakdown, president Collor’s impeachment and 2-3 years later, there is new growth above 5%. Finally, 2015/2016, the greatest GDP fall in the history of the Brazilian economy takes place, in Dilma Rousseff’s government, with a new political breakdown. The question is whether the next years will see vigorous Brazilian economic growth or not.

The world sugar deficit goes up due to the Indian harvest being smaller than previously foreseen. Thailand, although with high stocks, has a smaller production ahead. Europe also reduces the harvest and the Center-South will depend on the parity between sugar and ethanol. These points rule the discussions about the trading strategies for next year. It’s believed in India that so that it can export more than three million tons of sugar everybody is talking about, the futures market in NY will have to trade close to 14 cents per pound. Many bet that in order for the mill to consider a possible change in the current mix, the market would need to go to 13.50 cents per pound.

The XXXIII Intensive Course on Futures, Options, and Derivatives is confirmed for March/2020 – March 24, 25 and 26 at the Hotel Wall Street on Rua Itapeva in São Paulo, SP. Don’t leave it to the last minute. Chances are the spots will have run out by the end of this year.

An Archer course in Europe? You decide.

Dear readers, we have received inquiries from some European-based readers about the possibility of teaching a course on futures, options, and derivatives. For us to offer a course in London / Geneva we would have to have a minimum audience of 15 people. If you are interested in taking the course, please let us know at priscilla@archerconsulting.com.br and if we get the minimum required we will take a second step, contacting all interested parties and trying to establish a date and place that is good for everyone. Thank you for your interest.

         

Arnaldo Luiz Corrêa

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Receives weekly comments from the market