NARROWING THE LIMITS
The sugar futures market in NY closed out Friday with the contract for October/2023 at 23.51 cents per pound, gaining 72 points over the week (16 dollars per ton), the same increase as that of the next trading month. The farther maturities closed out by up to 8 dollars per ton down. The dead cat bounce commented on last week was stronger than one could have imagined. What happened?
After a sharp drop in sugar price in NY, the end users sped up their fixations giving the futures market a reasonable support. They ended up acting as a counterpoint to the funds that liquidated their long positions by a little more than 21,000 contracts over the period running from Tuesday, June 27 to Monday, July 3.
Those who missed out on the chance to fix their sales while the market was trading way up there and won’t risk missing the chance again should behave just like the industrial consumers who gave the market support due to the fixation of their input, after regretting seeing prices take off while they were unresponsively looking at the screen. Therefore, over the short term, the sugar market tends to stay within a restricted price range between the support of the consumers and the resistance of the sellers (mills).
Paraphrasing the great minister Roberto Campos, mills and consumers “never miss an opportunity to miss opportunities”. The first ones fix their sales at a low and the others fix their purchases at a high.
There are those who still believe in the recovery of the sugar prices aiming the recent market high of 27.41 cents per pound late April. Anything can happen, but what could bring solid elements to this recovery seems to peter out. El Niño, for instance, is much more modest than what had been expected at first. But, on the other hand, China coming into the market at the recent low seems to have signaled that everybody will be happy with around 22.00-23.00 cents per pound.
With summer in the northern hemisphere, the volume of businesses at the NY exchange drops by at least 20% against the yearly average, having even come to 30% couple of years ago. Therefore, we can see a drop in the market fluctuations with NY staying restricted to a pretty boring price range. What can get the market out of this possible slumber that July/August invariably has in stock for us would be the resurgence of weather forecasts.
In the yearly accumulated, sugar still shows an increase of 17.32%, while diesel, oil and natural gas have dropped 22%, 9% and 43%, respectively. Some years ago, we saw the funds migrate from sugar to oil, pocketing the profit that they made in the former and betting on a recovery of the latter. I understand that this will repeat itself this year: India growing 6.5%, a great consumer of oil and importing 82% of its needs, improvement of the economies and consequently of the consumption, when we come up on the end of the year.
The hydrous drop was exaggerated as well as the sugar high. We believe that the market will regain balance in the Center-South offseason trading at 400 points of discount at most against sugar. There seems to be a window of opportunities in the horizon.
To read the previous episodes of World Sugar Market – Weekly Comment, click here
To get in touch with Mr. Arnaldo, write on arnaldo@archerconsulting.com.br
