World Sugar Market – Weekly Comment – Episode 69

Here we go again

The sugar futures market in NY closed Friday’s session with a vigorous recovery compared to the previous week. The March/2023 futures contract closed out the week at 18.68 cents per pound, 110 points above Friday’s closing, equivalent to a little more than 24 dollars per ton. All the other maturities closed out in the positive field with fluctuations between 31 and 108 points (from 7 to 24 dollars per ton).

Brent oil type (which serves as reference for Petrobras) and WTI also closed out the week in positive area after the Chinese government declared that it will make significant changes in the imposed restriction to mobility due to its zero-COVID policy. The news about the relaxation brought relief to the discouraged market of commodities. As we know, China is the locomotive of the planet. If they sneeze, the rest of the world catches pneumonia.

With oil going up 5% over the week, the gap between the gas price charged at the refinery by Petrobras and the price traded on the international market is around 13%. Regardless of that, hydrous ethanol traded at B3 (Brazilian Exchange) has recovered and is trading at less than 100 points of discount against sugar in NY. The dollar has plummeted against the real, trading at R$5.0200 on Friday, the smallest quotation since June/22, but closing out at R$5.0600.

The information coming from various mills is that the price of many inputs that make up the sugarcane/sugar/ethanol pricing is smaller in this crop than it was in the last crop. Remember that the dollar was trading close to R$5.880 last year and the shortage of some chemical inputs, most of which traded in US dollars, caused a significant increase in their prices.

So, starting out from such an artificially high previous base, the production cost of sugar in real per ton is expected to be lower. Curiously enough, it turns out that since the real has appreciated against the American currency – and everything shows it can appreciate even further with the new cash inflow from abroad – the production cost in cents per pound should increase!!

Note that Brazil’s greatest competitor – India – has seen its currency devalue against the American dollar. So, with the devaluation of the rupee along with the real appreciation, we saw the production cost of both countries converge.

Our data show that the estimated production cost in India is around 18.50 cents per pound, while the cash flow cost in the Center-South, without depreciation, amortization or financial cost, is around 14.50 cents per pound. But, if we include all of them, the average cost jumps to 17 cents per pound FOB Santos. If the Brazilian currency reaches R$4.6000 (an 8.5% appreciation), the production cost in the Center-South will match the Indian production cost. That is unbelievable.

Obviously, we have to recognize that India has made great strides in the cultural traits of sugarcane fields, using new varieties and having adequate water volume. If – as it is expected – an adjustment to Petrobras prices and the maintenance of the expectations for the return of federal taxes on fuels interrupted by the president of the republic with a clear vote-getting purpose happen, the fact that the next crop will be more sugar-producing isn’t an irrefutable truth. The mills are doing the math and a lot of people have given different opinions about the production mix.

The problem lies in the policy that will be adopted by the next government. Representative and PT’s (Workers Party) president, Gleisi Hoffman, confirming her inexhaustible ability to say stupid things, posted on a social media that she is against distributing Petrobras dividends because the company “has to serve the Brazilian people”. If she had the minimum number of neurons in the brain, the Representative would remember that Petrobras is a public-private company. The anachronism of these people is known, but no less astonishing. The Representative is paving the way to support the atrocities the president-elect intends to do when he talks about making gas price “Brazilian”. The sector had better get ready.

However, we should acknowledge the State-Owned Companies Law approved in Temer’s government, which lays down that the members of the Administrative Council and the nominees for the board of directors, including president, general-director and president-director, have at least a 10-year professional experience in the company’s field of business.

The law prohibits the nomination of politicians or people who have participated in a political party or held an office in a union over the last 36 months. PT (Workers Party) wants to nominate Senator Jean Paul Prates who, according to the current rule of governance, is barred. Is the company really armored or is PT’s party starting early?

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

To get in touch with Mr. Arnaldo, write on


Please enter your comment!
Please enter your name here