World Sugar Market – Weekly Comment – Episode 26


Good rainfall and more sugarcane in 2022?
The fear of a new covid-19 wave in Europe knocked down energy prices on the foreign market. Brent-type oil plummeted on Friday closing out at 78.70 dollars per barrel and totaling a drop of 6% in the monthly accumulated.

According to The New York Times, the number of new cases of the disease in Germany has gone up by 40% and it is now at the highest point since the start of the pandemic. Detail: 68% of the Germans have been fully vaccinated. In Brazil, we are 61%. The comeback of the virus and the possible lockdown in some European countries totally change the perspective about global economic recovery and, for the sector, casts doubt on the strategy of the mills favoring ethanol production at the start of the next crop. We will have to tackle the imponderable once again.

The sugar futures market in NY closed out the week just about unchanged in the months that cover the 2022/2023 crop in the Center-South (May/2022 to March/2023) and an increase of less than two dollars per ton for the next one. March/2022 surprised in Friday’s after-market and closed out at 20.17 cents per pound, a 16-point high in the week (3.53 dollars per ton). According to a (pretty good-natured and sour) senior New Yorker broker this unexpected high at the end of the day was due to the following alternatives: a) an anomaly when the order was typed in (known as fat finger), b) someone lost a buying order and panicked, c) a physical contract was traded at the last minute and needed cover, d) stupidity. You can choose.

The high-standard mill’s executive expressed his satisfaction with the “very favorable environment with the return of the rainfall in great amount in October”. In the area where the mill is, he found that “it rained 250 millimeters on average in October against zero last year”. This amount of “rainfall in the middle of a crop whose harvest was pretty advanced, can be a positive factor for next year”, he goes on to say. “November is doing pretty well too. It has been raining a little over the average and much more than the volume seen last year. We’re getting more excited about the productivity of the next crop, people talking about 10% more”. If this perception extends over to the other regions, the May/July spread in NY will start to reflect this new possible scenario in no time.

The funds have added on 15,700 new purchase contracts according to COT (Commitment of Trades), a report of the principles published by CFTC, considering last Tuesday’s position against that of the previous week. The funds are long by a total of 189,000 contracts. The effect of this increase on the position of the funds doesn’t seem to have done much good because the same momentum the market showed on the way up disappeared very quickly on the way down. That is, the market is going up thanks to the funds.

Sugar price fixing for export on the part of the mills for the 2022/2023 crop must be coming up on 50%. The uncertainties around the market not only about the fundamentals but also about the extra-sugar factors we have no control over put the brakes on – though temporary- pricing. In our view, this is wrong – let’s wait and see.

Dispassionately analyzing it, a worsening of the European sanitary picture can reflect on a drop in energy consumption, knocking down the oil price on the foreign market and contaminating via arbitrage the hydrous price here, making the mill think about a change in pro-sugar mix, increasing the supply and knocking down prices. In short, what’s holding the sugar price on the world market over the next months is the behavior of the oil price. Thus, not fixing sales sugar price for export seems to be inappropriate to us.

A possible escalation of the political, fiscal and economic crisis in Brazil can devalue the real even further, pressing sugar in cents per pound. The dollar effect on fuel prices would have a smaller impact due to the GPD shrinkage.

Hydrous at the Brazilian exchange already points to a discount of 200-250 points against NY for the first quarter of 2022, although the almost non-existent volume of businesses at B3 can distort prices. But the shorter maturities show a discount of 130 points.

And how about next year’s crop after we have heard the abovementioned executive? At the end of the conversation, he still admitted that he “believes we can see a substantial sugarcane recovery. 580 million tons or even more wouldn’t be too far-fetched if it rains a lot in April and May”.

Buying sugar puts for 2022/2023 fixing the exchange rate doesn’t hurt anyone. Having seen this movie before, I fear watching the market fall into emptiness due to the events we cannot see or believe in right now, and that, when they happen, we will have a sense of urgency that many times makes us change tires on a moving car. It doesn’t work.

To read the previous episodes of World Sugar Market – Weekly Comment, click here

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