“Bad macro scenario may drive NY to 17 cents” – Archer Consulting

The world macro scenario worsened even further over the week that ended Friday. While the Central Banks raised the interest rates to hold back the rampant inflation, the world seems to be quickly heading toward an inevitable recession in 2023. The amount of money injected into the economies to face the global slowdown caused by Covid-19 has now brought the bill to be paid. Excess cash injected into the economy causes inflation and the Central Banks took too long to stop it. Now they are increasing the interest rates to stop inflation they themselves created and recession is knocking at the door.

Speaking to ChiniMandi News, Arnaldo Luiz Correa, Risk Manager in the agricultural commodities & Director at Archer Consulting shared his views,

He said ? “Is anybody still surprised?

The energy market has collapsed, WTI has traded at 78 dollars per barrel, while Brent which serves as reference for Petrobras has sold for a little over 85 dollars per barrel, a drop of 7.0% and 5.0%, respectively, over the week. So, it’s expected Petrobras will adjust the prices downward soon. Will hydrous follow suit?

Sugar in NY ended negotiations with October/2022 – which expires next week – appreciated by 40 points against the previous week, which was at about 18.28 cents per pound. The October/March spread appreciated 32 points, or seven dollars per ton accumulated over the week, showing a possible delivery movement of sugar on the expiration of the future contract of October/2022 next Friday, September 30. Let’s wait and see.

Meanwhile, the non-index funds increased their short positions and based on Tuesday’s data released by the CFTC they are short by almost 41,000 lots. With this exposure of the funds in the midst of an anemic energy market, the pressure on NY sugar will continue and the March/2023 contract might go after the 17 cents per pound.

Some factors have contributed to a possible drop in the support level of sugar in NY: the maintenance of the basic interest rates of the Brazilian Central Bank and the increase in the FED interest rates together result in the decrease of the spread smoothing over the future curve of the real; the Indian rupee devalued against the dollar and the break-even point of the Indian sugar is now closer to 18.50 cents per pound (it was close to 19.50 before). The hydrous price has slightly recovered from the sharp drop it suffered, but is still trading close to 400 points of discount against NY, that is, below the production cost. Depending on how the market will work as of January/2023 with a new Government in Brazil, if ethanol doesn’t bounce back, we will certainly have a greater availability of sugar predicted for the 2023/2024 crop.

To read the weekly comments on the World Sugar Market by Arnaldo Luiz Correa, click here


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