WATER AND ROCK
We cannot deny that the sugar futures market has gotten so boring that it must cause drowsiness to those who have to keep looking at the NY trading screen. Friday’s close at 27.12 cents per pound for March/2024 was the fourteenth one in a row that was below the 28 and above the 27 cents per pound. The fluctuation between the high and the low in these excruciating days has been only 3.2% against the average of the closes over the same period. This is practically 1/3 of the average of the last 24 years for a 14-day period. But what does that mean, after all?
The answer to that question would require some scientific deepening. What it might mean is that the market is reaching exhaustion, a period that usually predicts a market collapse or a violent and vigorous disruption for higher levels. Remember the saying “water dropping day by day wears the hardest rock away”? The funds are the water and the fundamentals are the rock.
Early this week, due to the holiday on Friday, the CFTC (Commodity Futures Trading Commission) published the position of the funds and we found out that the speculative ones added on 28,286 long lots in the last calculation, while the market moved just 50 points over the analyzed period (Tuesday’s close on November 7 against the previous Tuesday’s, October 31).
In theory, at this pace, the spec funds need to buy at least 150,000 additional contracts in order to raise the NY price to the 30-cent-per-pound level. The COT (Commitment of Traders), published today related to November 14 against the 7th, showed another increase of 1,884 lots (and the market varied 41 points negatively).
The dollar closed out the week at R$4.8986, a 0.12% drop. The values in real per ton of sugar in NY fluctuated negatively by R$13/ton for 2023/2024, were unchanged for 2024/2025, and fell R$21/ton for 2025/2026.
To validate the disappointment in relation to New York, the average volume of trading has been below 85,000 lots per day while the open position fluctuated by a little over 4,000 lots at 14 trading days. At the same time, the annualized volatility of the market plummeted from 26% to 22%, which means that the market is showing a more stable behavior. That is, the participants are more confident about the current conditions of the market and about the future perspectives, leading to less uncertainty and, therefore, to less abrupt price movements.
While some expect the sugar market to reach new highs, oil skids badly and shows cost and carry in the first three months of trading. That occurs when the shortest maturity is cheaper than the longest maturity, which includes the cost and carry. This is a characteristic of markets whose supply is greater than the demand and, consequently, those who produce give greater discounts so that the buyer will get the product as soon as possible.
Making a long story short, the energy market is still pressured, despite a report released early in the week by JP Morgan recommending that clients buy the commodity (oil). As an experienced trader of the financial market, who I had the privilege to work with, would say, “There’s nothing like a good tip for us to go bust”. In a month, the accumulated losses of Brent, diesel, WTI and natural gas are 9%, 11%, 11% and 14%, respectively.
What prevents the sugar market from breaking the support of 27 cents per pound is that the industrial consumers have buy orders around 26.50-27.00, so any more significant performance should find – at least for some time – buyers at the lower levels.
The average for 50 days is at 26.98 cents per pound, lighting up the yellow light for those who follow these kinds of indexes. The average for 100 days is 25.63 cents per pound, still a little far away.
As we have warned our clients, India should reduce the sugar volume for ethanol production. After they directed 4.1 million tons of sugar to produce ethanol in the last crop, the estimates for the recently-started 2023/2024 crop shrank dramatically to 3.5 million tons of sugar. The squalid energy market is the great “promoter” of this change. The next change – I would bet on it in a heartbeat – is that India will slowly start issuing licenses for sugar export. Let’s see how things play out.
During the sugar week late October, at least 50% of the people bet on sugar at 30 cents per pound. I wonder what this percentage would be at today.
You all enjoy your weekend.
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