World Sugar Market – Weekly Comment – Episode 53


A bunch of bare wires

Generally speaking, the last 30 days have been excruciating for the commodities. Energy commodities, for example, have decreased by 15-18% in WTI and Brent oil and in gas and diesel as well. Grains have melted – wheat by 27%, soybean oil by 24%, corn by 23%, and soybean by 14%. The so-called soft commodities haven’t been spared of the global meltdown either: coffee has dropped 13% and cotton 25%. Dear readers, guess what is the only commodity that has dodged this meltdown? Those who answered sugar got it right.

Sugar has been going against the rest of the commodity market and other risk assets for a series of reasons. The distortions and doubts brought about by the change in fuel taxes caused an advancement of ethanol purchase by the dealers, alerting the market that the mills could focus more on sugar from now on. But this should make sugar price go up in NY and not down, right? In thesis, that’s right. However, this perspective caused ethanol price to go up momentarily and (paradoxically) sugar ended up being appreciated via arbitrage.

For some time now, we have been saying here that we do not believe in the consistency of this sugar hike in this current crop due to the shrinkage of the global economy, smaller inventory replacement by industrial consumers, loss of household income and increase in interest rates. Our take on that hasn’t changed.

NY closed out the week with October/2022 at 19.16 cents per pound, an increase of only 14 points against the previous Friday, a little over 3 dollars per ton. The real closed out devalued against the American currency at R$5.4050. The values of the futures contracts for the 2022/2023 crop (October/2022 to March/2023) closed out with gains of R$56 per ton in the weekly accumulated; the 2023/2024 crop with only R$28 gains and the 2024/2025 crop with a drop of R$15 per ton. All values take on NDF (Non-Deliverable Forward) operations.

The non-index funds flipped again and now are long by a little over 10,000 lots. The open interest in sugar in NY has reached its lowest level since November/2017. Small volume is an appropriate environment for robots and algorithms to go to town, moving the market up and down like on a rollercoaster ride. That way, the trading volume increases, but the open position doesn’t change because they zero out the positions at the end of the day. Let’s see.

Note that the balance of the commodity prices, especially gas and food, should bring positive surprises to the inflation decrease in the last quarter of the year and early 2023. Some economists believe that inflation might drop by a digit, which would make way for the Brazilian Central Bank to reduce interest rates at the start of the year. So, the NDF curve, which shows appetizing rates of the Brazilian currency, would decline. This possibility has made some mills speed up pricing their export sugars for the 2023/2024 crop, according to a futures broker.

All this concern makes a lot of sense. A possible combination of events like oil trading close to 85-90 dollars per barrel, the real appreciating against the dollar at the start of a new government and inflation reduction followed by the decrease in the SELIC fee for the start of the year would shrink prices in real per ton. However, pricing without any upside protection for such a fragmented scenario can be a shot in the dark. The purchase of a call at an exercise price 200/250 points above the fixation level is highly recommended.

As an experienced executive from the fuel market put it, “the market is full of bare wires and far from being rational there is no short-term scenario that will pull through.” He summed up pretty well how most companies feel. Actually, after almost 30 years working on the sugar-alcohol market, I don’t remember seeing such confusing, messy and labyrinthine environment like this current one.

So much energy spent on this fuel episode and now with oil prices plummeting Petrobras would have room to decrease gas price at the refinery by approximately 5%. They tore up the Constitution, decreased states’ tax collection, set up dangerous precedents so that this nefarious Congress can go on stealing the country ad aeternum on behalf of the reelection. Dilma handed out R$10 billion. The current tenant has handed out R$40 billion. Someone will have to foot the bill sometime.

You all have a wonderful weekend.


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