PREDICTIONS AND DISAPPOINTMENTS
If you are reading this comment and are not a hologram it is because you made it through the São Paulo Sugar Week. It was a very successful week with a flood of events bringing quality information to the sector and making it possible for old friends and associates to meet again at the Gala Dinner sponsored by the Sugar Club after four years of pandemic seclusion. There were cocktails made lively by the high sugar prices and the significant supply of alcohol in wine glasses and glasses going around the party halls.
Everybody – except for this scribe and few others – was bullish to the third power. Everybody looked more excited than a kid at a candy store – or better yet, traders on a bullish market. If the goal – still not reached – of 30 per cents per pound was until then an illusion, now the serious conversation is around 32 cents per pound. I wonder if sugar is the new Bitcoin; to infinity and beyond. An experienced market trader teased me saying that my Santos Soccer Team will fall before sugar in NY does. Fingers crossed for this bad luck streak to blow over!
Someone who started his career on the commodities market in 1975 working for the then greatest coffee exporter in Brazil called Anderson Clayton and has already worked for several agribusiness companies and run into a range of distinct market situations might want to use the acquired experience over these years in order not to fall into past traps.
I worked for a company owned by Spanish shareholders that were so wise that would make a Bishop look like an altar boy. They used to cite a popular proverb in Spanish that summed up the saying about old people having a lot to teach and pass on through living and experience. They used to say, “The devil knows more because he is old rather than because he is the devil.”
Remembering situations similar to what we are going through now, with everybody looking at one direction, works as an antidote to the festive environment which, I must confess, worries me. It’s not about closing our eyes, but analyzing the market with the care it deserves. I have been to arenas where everybody was looking at the bulls, but eventually, the market ended up head-butting everybody. And I have also witnessed the opposite: everybody rooting for the bears to hibernate only to find out that they were more awake than a student during a test week. In both occasions, like now, there were solid and unquestionable fundamentals that supported the belief about price trajectory.
In a world where everybody looks at just one direction, sometimes it’s healthy to be the rebel who looks at the other side. I’m not swimming against the tide, but I have learned that when the tide is too high, it’s best to worry about ocean swells that might come in. As no one is sure what tomorrow will be like, we have to hold on to what is solid and concrete and not let opportunities to secure good profits for the shareholders slip by. Leave the 30 cents and beyond for the cloud-walker and focus on how much you bring to the shareholder.
The sugar futures market in New York closed out Friday at 27.37 cents per pound for March/2024, an increase of 52 points accumulated over the week, equivalent to 11.46 dollars per ton. New York even hit 28 cents per pound, the highest price since October 19, 2011. The real currency appreciated against the dollar in the weekly accumulated by about 0.3%, closing out Friday at around R$5.0160 per dollar, after hitting the R$4.9310 low.
New York sugar converted into real per ton and applied the NDF (contract in terms of dollar with financial settlement) for calculating the futures curve appreciated R$30 per ton on average for the 2024/2025 crop and practically zero for the 2025/2026 crop.
The average price found in NY in real per ton and adjusted by the IPCA this year reached R$2,811 per ton and the highest was R$3,206. Based on this Friday’s close of the exchange, that amounts to NY at 24.40 and 27.82 cents per pound, respectively. Keep in mind that the data always refer to the first month traded in NY and, therefore, doesn’t mean they can be feasible for longer maturities, especially when we know that the curve is inverted.
A mill that wants to fix its sugar for the 2024/2025 crop at the same percentage for each month of the maturity would get a net current value of R$2,842 today. Not bad, because this price is higher by 94.3% than all the other NY prices adjusted and found since the start of this century.
The speculative funds reduced their long position by 9,000 lots. Based on last Tuesday’s position, they were still long by 178,000 contracts. The market needs buying aggressiveness from the funds to be able to come to 30 cents per pound. Let’s wait for the next chapters.
I love the irony of the markets and their paradoxical certainties! Between whisky sips – because, of course, every good debate about the market during a cocktail party requires a glass of something strong – it’s fascinating to see how we are picky about our “accuracy”.
Here we are, in the greatest production center of sugarcane of Brazil, scratching our heads about the remaining 15% of the Center-South sugarcane crushing. It’s like being a chef who isn’t sure how much salt to put in his own recipe. But, look, when it comes to India and the 2023/2024 crop, we suddenly turn into Nostradamus with a calculator, predicting numbers with an accuracy that would make a Swiss watchmaker feel insecure.
This type of inconsistency is a reminder that sometimes the confidence we place on certain predictions can be as unfounded as believing that the diet after Sugar Week starts on Monday. Don’t get me wrong but data is crucial. But let’s remember to have a little epistemological humbleness, especially when we are still trying to accept the numbers of our backyard.
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I would like to congratulate Santos Neto Advogados/Kinea on the excellent lecture given by the economist Marco Freire; Datagro on the high-level event, breaking attendance records; Copersucar/Alvean, with honors, on hosting the most disputed cocktail party of the week and SUCDEN on its traditional lunch to close the week on Friday. Long life to the market and hope we can do even better in 2025.
You all have a nice trip home and get some rest.
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
