World Sugar Market – Weekly Comment – Episode 46

At the forefront of delay

The market was in distress along the whole week making calculations and discussing possible scenarios created by a likely approval of the bill that is pending in the Federal Senate limiting the ICMS tax rate on fuels, electric power, telecommunications and public transportation to 17%.

If it passes in the Upper House, according to Tarcilo Rodrigues’ estimates from BioAgência, the average gas price in the state of São Paulo – the largest consumer of the country – will drop from R$ 6.9340 per liter (found in April) to R$ 6.4550. If it wants to keep the 70% gas parity, hydrous will have to be traded at R$ 4.5185 per liter. This value is about R$ 3.1500 tax-free per liter ex-mill or equivalent to sugar at 18.65 cents per pound in NY. That is, in theory, NY would have to drop 100 points to be aligned with hydrous price.

However, if we incorporate the CBIO value, this difference drops to just 50 points. That way, the early panic that sugar in NY could drop up to 200 points has faded. NY might even drop, but it won’t be because of that.

Nevertheless, it’s good to point out that conversations about the size of the crop in the Center-South among producers are discouraging. The numbers the mills are working with differ a lot from those of the consulting firms. If latter estimate crushing at 540-550 million tons on average, the evaluation of the agricultural areas of the mills is at 15-20 million tons less.

But, going back to the ICMS issue, regardless of the Senate decision, it’s worth remembering that the gap of the gas price at the refinery compared to the foreign market was 22.5% on Friday. That is, all this mess about the reduction of fuel price can be neutralized since if Petrobras continues being prevented from adjusting prices, we might run the risk of a domestic shortage.

To be on the safe side, the fact is that the sugar futures market in NY closed out the week with a slight 30-point drop (6.60 dollars per ton) against last week, with July/2022 at 19.65 cents per pound together with drops between 30 and 5 points along the price curve which runs until March/2025. The spreads at the Exchange continue to show that there is no sugar availability problem coming up.

Despite all this, the non-index funds keep betting on a sugar high, after all, in the yearly accumulated, the commodity has gone up by only 4% with, for example, gas by 76%, oil by 53% and wheat by 50%. The position of the funds has increased almost 5,500 lots over the week,reaching now 134,600 contracts.

The change in command at Petrobras by the Federal Government for the third time this year must make economist Adriano Pires feel relieved for having turned down the President’s invitation to that position.

Actually, to fill this important chair at one of the largest companies of the country, the President couldn’t care less about the technical quality of the professional who will fill it; what he wants is a puppet who will say amen to all his demands. Someone kind of having the same profile as that slavish minister who holds on to the position like a hungry dog does to a bone. 

The concrete fact is that Petrobras price damming causes a clear reduction of the company’s profit and smaller dividend distribution whose greatest beneficiary is the government itself, but the President knows nothing about economy. The new Petrobras president should introduce a new fuel pricing policy aligned with the desire of the big boss, who is only thinking about his reelection, which seems to be farther and farther away.

A candy to whoever guesses who will pay for this price damming bill. Whoever said it is the tax payer and the sugar-energy sector that, considering an average price gap of 11% only in the yearly accumulated, has already taken a blow estimated at R$ 2.5 billion (US$ 530 million) got it right. In terms of federal government, be it this one or the former PT’s governments, which treated the country like grasshoppers in a cornfield, Brazil has always been at the forefront of delay. And there is no perspective whatsoever we will get better.
You all have a nice weekend.

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

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