AMONGST TOASTING AND DOWNTURNS
A week that started out with reasonable optimism and celebration because of the traditional Sugar Gala Dinner in New York and the numerous events, meetings and seminars in the city about the sugar and ethanol market, the futures market seems to have shrugged and – despite heroically hitting 20 cents per pound over the week – melancholically closed out at 19.26 cents per pound this Friday, a 2-point minimum drop. For the longer maturities (from March/2026 on) the market dropped between 11 and 37 points, a six-dollar-per-ton average.
Leave it to a gala dinner with good-quality whisky to turn the fundamental of the market upside down. All of a sudden, after toasting with some single malt, the problematic markets seem not to be just a mere illusion anymore. We all know that the best market analysis does not come out of data and trends, but out of the effects of some good Scottish hard liquor. And with every sip, the concerns about the reality of the fundamentals fade away until the optimism – drunk, of course – takes over. Actually, who needs solid fundamental markers when we have some great hard liquor in hand?
All kidding aside, as a trader on the other side of the world told me, “The sugar market in NY is just reflecting the sugar flood caused by Brazil over the last months”. There is no arguing against it. Brazil exported in the crop year that ended last March, so the 2023/2024 crop, 35.2 million tons of sugar, that is, nothing less than 7.4 million tons above the volume shipped in the previous crop. Unless the supply and demand law is revoked, it is it – except for some rare incidents – that causes the price drop. We have had enough of irony.
The market players often delay responding. That’s exactly why the commodities markets tend to fluctuate drastically, both upward and downward. Homo sapiens, driven by an ancestral impulse, is often led by panic: buys frantically when the prices are high and sells desperately when they are low. And the price for doing exactly what everybody else does is receiving exactly what everybody else receives.
Thinking outside the box requires effort and, let’s be honest, the fast-pacing rhythm of the modern corporate world makes little room for traders’ creativity. Besides, an unexpected market turnaround can devastate a carefully built position, making the traders look like an Australopithecus before the Administration Council. Challenging the conventional can be risky, but it’s also the only way to truly stand out in a sea of conformity.
Curiously enough, at the closing of the sugar week, a renowned and traditional event hosted by Sucden, in Brazil in October last year, the participants were invited through an app to speculate about the future quotation of sugar by the end of 2023. Though I do not remember the exact percentage, most forecast that the prices in New York would go beyond 30 cents per pound. Recently, at an Alvean event in bustling New York, a similar survey revealed that more than 50% of the attendees (thanks, Michael) projected that by the end of this year sugar will be fluctuating between 19.50 and 22.00 cents. Does not this contrast perfectly illustrate the example of what we talked about above?
Consider two distinct moments – October/2023 and May/2024. What has really changed? During the Sugar Dinner week in Brazil in October, the price in NY was at 27.34 cents per pound, with the dollar at R$5.0100 and sugar trading at approximately R$3,170 per ton. At the closing of October, the total exported volume in the accumulated of twelve months did not go beyond 29.5 million tons. The sugarcane crushing, in turn, was around 550 million tons, with an expectation of it reaching 615 million by the end of the year. Everyone knows the end of the story.
The speculative funds have basically kept the same short position in NY, a slight reduction, but according to the COT (Commitment of Trades), report of the principals, based on last Tuesday’s position, they had 47,685 sold lots.
Up until April 30, 2024 the funds had fixed prices for a volume greater than 22.78 million tons of sugar for exporting. The consolidated average price was 21.94 cents per pound. Upon being converted into the local currency, the average FOB price at the Santos port, with the polarization premium, was at about R$2,490 per ton, showing a reduction of approximately R$27 per ton compared to the previous estimate of January. This volume represents a fixation percentage of 84.25% for the 2024/2025 crop. The average price in real per pound suffered a slight drop, setting at R$108.38 cents per pound, without the polarization premium.
Registrations for the in-person Advanced Course on Futures Options and Derivatives – Agricultural Commodities to be held in São Paulo on June 25 (Tuesday) and June 26 (Wednesday) are open. This will probably be the last opportunity this year for you to take a course that has become a reference on the market and has already been attended by more than 3,000 professionals. For further information, contact priscilla@archerconsulting.com.br.
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
