CHALLENGING GLOBAL SCENARIO IMPACTS SUGAR
In an environment where the world macroeconomic scenario points to an imminent risk of recession in the USA, where the Japanese Exchange melted, accumulating a 10% drop in August, where the deterioration of the conflict in the Middle East, with unpredictable repercussions, is a constant threat, and where the negligible results in the balance sheets of the great American companies in the stock market, such as Microsoft, which plummeted 12%, cause the flight of the investors of the risk assets, hitting the commodities and worsening the market mood, it seems like there is no room for optimism. And it couldn’t be any different as far as sugar is concerned.
The contract for October/2024 closed out the week at 18.17 cents per pound, an accumulated drop of 31 points (equivalent to R$6.83 per ton) against the previous week. The other trading months also suffered greater drops in shorter contracts and smaller drops in longer contracts – on average, a drop of 10-15 points (3 dollars per ton).
The position of the funds, according to the COT (Commitment of Trades), published by the CFTC (Commodity Futures Trading Commission), this Friday based on last Tuesday’s position pointed that they were short 40,500 lots.
In our opinion, the position of the funds of this magnitude is vulnerable and will depend on exogenous factors of impact that give support for the market to move toward the speculators’ desired direction. It seems to us that right now, looking at the fundamentals of the sugar market – and not at the external factors – the bearish news is already duly priced. We know that the macroeconomic scenario creates uncertainties. For example, the VIX (famous fear index) went up 29% this Friday.
Last week, the type WTI and Brent oil, besides gas and heating oil, all fell more than 5%. The Chinese stimuli for the economy didn’t bring any results, increasing global concerns. The Brazilian real continue suffering against the dollar and devalued a little more this week, closing out Friday at R$ 5.7000, after having reached R$ 5.7935, the highest quotation since March/2021. Brazilian Central Bank kept the interest rate stable at the meeting that took place on Wednesday, but said that it is wary of how the government will deal with the fiscal deficit.
The sword over the market, as we have already commented on here is the huge volume of sugar being exported by Brazil, flooding world with sugar. Now, a new record: 36.8 million tons of sugar in the 12-month accumulated (from July/2023 to June/2024), an increase of almost 28% against the same period last year. If we focus on this semester only, the country has already sent 16.8 million tons of sugar abroad, 49% above the same period the previous year.
On the other hand, the possibility of India exporting sugar is very small. And if it happens, it won’t be before February/March next year. The fair and remunerative price (FRP) was adjusted by 8% due to the increase in agricultural input cost. According to an executive who works in that country, “The sugarcane culture is still the first choice of the farmer compared to other cultures. Besides, sugarcane has a guaranteed market with buyers having to pay FRP”. FRP amounts to 17.75 cents per pound.
Another analyst understands that “for there be no cane price arrears for next year, price of sugar should be at ₹41,000 per ton in Uttar Pradesh (UP) and about ₹39,000 per ton in Maharashtra (MH)”. That amounts to 21 and 22 cents per pound, respectively. Our estimate is that the 2025/2026 prices are outdated by 200 points and the 2026/2027 prices by 300 points, corroborating to what the mentioned analyst thinks.
According to our collaborator Marcelo Moreira, the October/2024 sugar contract traded at the week’s high at 19.32 cents per pound, closing out the day at 18.10. This movement was influenced by the devaluation of the Brazilian real and by the price drop of WTI oil. The major stressing factor on the market was the release of the USA economic data, which showed a risk of recession as of the second semester. In the short term, the October/2024 contract finds important support within the range of 17.75/17.46 and 16.50 cents per pound, with resistances within 18.54/19.11/19.71 cents per pound. The July/2025 contract closed out on top of the crucial support of the Bollinger band of the last 50 days, at 17.44 cents per pound. The new supports are at 17.04 and 16.62 cents per pound, while the resistances are at 17.72, 18.89 and 18.89 cents per pound.
Over the last 20 years, the smallest monthly volume of sugar futures contracts traded at the ICE (the sugar exchange in NY) has focused, in 75% of the times, on the last quarter of the year. Obviously, this has to do with the end of the sugarcane crop in the Center-South and the decreasing volume of the need for hedging over this period before the next crop. So far, nothing new; outside this interval, the vacation period in the Northern Hemisphere (July and August) also records a business volume that is 20% below the average, reaching 30% sometimes.
Smaller volume, with fewer participants makes for greater fluctuations and greater volatility. And we have seen this on the sugar market over the last weeks. The market has given confusing signs hurt by internal and external noise that has affected the exchange rate and the erratic behavior of the speculative funds.
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On top of all the problems affecting the Brazilian market due to the insecurity hovering over the fiscal adjustment, we still have to put up with the shameful abstention of Brazil at the OEA meeting, which condemned the attitudes of the tyrant who presides over Venezuela in the most disastrous election fraud in history. Only an ignorant mind such as that of Lula da Silva would classify as “normal” the fraudulent elections in that country. The Brazilian left is incredibly retrograde and doesn’t learn anything out of the series of failures it perpetrates. If we had a Congress with a little self-respect, we would already have filed for Lula da Silva’s impeachment for his life achievements.
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
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