EYES ON THE CLIMATE AND ON THE SWANS
The sugar futures market in New York tried hard to record a high over the week, driven by the news out of the events in Ribeirão Preto (Datagro) and Dubai. However, Friday, the contract for May/2024 closed out at 21.18 cents per pound, setting a modest increase of just 9 points against the previous week’s close. The performance of the other contracts was practically stable, except for those maturing after March/2026, which recorded drops between 12 and 30 points, equivalent to a fluctuation from 2.50 to 7 dollars per ton.
During the Annual Sugar Conference in Dubai, a poll among the participants revealed some peculiar beliefs about the sugar futures market. According to 23% of the attendees, sugar will close out 2024 elegantly swinging between 20 and 23 cents per pound. Another optimistic group of 47% bet their chips on a sweeter goodbye to 2024, forecasting prices between 23 and 25 cents.
Curiously enough, an overwhelming consensus of 85% gives the climate the role of the great conductor of the price orchestra this year, maybe suggesting a dance to the beat of the rain and the sun. A league of justice of 3% only believes that the fundamentals have something to do with the direction of the prices, while another fearless trio of 3% imagine that only a sudden invasion of black swans could turn this boring game around. Finally, in the never-never land, 0% of the voters think that the logistic challenges will have any effect on the prices – maybe because everybody hopes sugar will learn to teleport itself soon.
As we have already pointed out, and Dubai just confirmed that, the climate plays a major role in determining the courses of the sugar market. The mentioned poll only echoes this widely accepted consensus. Of course, we are always at the mercy of eventual black swans capable ofunexpectedly shaking the market.
However, if we focus strictly on the fundamentals, we will realize that they suggest a market that, assuming stability of the other variables, tend to level off in the range from 21 to 24 cents per pound – a scenario well aligned with the expectations of the market players. Yet, what is obvious is that the commodities behave like a wild beast, unpredictable and daunting in nature, always ready to take even the most experience traders by surprise.
The scenario of sugar prices in New York depends on two potential influencers: the whimsical climate changes and the possible reentry of speculative funds acting as buyers. However, as cold water, the COT (Commodity Futures Trading Commission), independent agency of the USA government, which regulates the futures markets and commodities options, based on last Tuesday’s position, showed that the funds were practically zeroed out, long by just 88 lots!
Analyzing the wider scenario, especially the forecasts for the sugarcane crop in the Center-South for this year, the evidence suggests sugar supply sufficiency. That means that unless the climate decides to play a different game or that the speculative funds come in with a buying appetite (for now that’s only a hope) we aren’t looking at a scenario of sugar shortage on the market.
Archer Consulting released its first forecast for the 2024/2025 sugarcane crop, pointing to a strong production of 605 million tons of sugar. This should result in a production of 41.7 million tons of sugar and 31.5 billion liters of ethanol, out of which 7.3 billion are corn ethanol. On the other hand, the corn market in Chicago is going through a cost and carry phase, presenting a yearly discount above 12%, which means an abundant supply to the point of “overflowing”.
In the energy scenario, the inverted situation suggests an absence of imminent tension. That implies that under normal circumstances corn ethanol will be available in sufficient amounts to meet the internal demand, providing the mills with greater freedom to maximize sugar production. Meanwhile, the International Sugar Organization (ISO) predicts a slight surplus on the global sugar market this year. The downward trend on the grain and energy markets indicates that the commodities are facing a descending pressure.
And the burning question is: just imagine that the Indian crop is better than what the market expected, that the energy market stays as stagnated as it is now, and also that after the Indian elections in May, India decides there is leftover sugar and that exporting a surplus of, say 500,000-1,000,000 tons – wouldn’t hurt anyone. That would be a beautiful kaala hans, or a black swan, in Hindi, which would wreak havoc on the market… Just imagine.
And what does our analyst Marcelo Moreira say? The May/2024 contract traded at the week’s low at 20.53 cents per pound. In spite of the recovery at the end of the week (21.15), May/2024 is limited to the moving averages of the 9/17/50/72/100/200 days respectively to 21.50/21.90/22.00/22.20/23.50/23.90 cents per pound and support on 20.10; be careful because the speculative funds might start buying again in order to break these barriersand add stops!
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The New Advanced Course on Options about Futures – Agricultural Commodities has already been set to take place on April 2 (Tuesday) and April 3 (Wednesday), from 9:00 am to 5:00 pm at the Hotel Travel Inn Paulista Wall Street, on Rua Itapeva, 636, Bela Vista, São Paulo, SP. We have introduced new modules, withstrategies, book management, delta hedging and trading game, among other subject matters. For further information, contact priscilla@archerconsulting.com.br . There is a limited number of participants.
You all have a nice weekend.
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
