AMONGST TOASTING AND DOWNTURNS
The sugar futures market in NY performed terribly this week regardless of which side of the market you are on. The mills that believed in Santa Claus and expected sugar to bounce back to 25 cents per pound look like they have seen a ghost. They have this expression of shock and disbelief as if they have gotten so frightened they can hardly process what happened. And they are not the only ones.
Some industrial consumers, who carried exotic structures for pricing fearing that the sugar market in NY would go beyond 30 cents per pound, agreed to exchange this risk for a “great” fixation – maybe with a lot of praying – about 24-25 cents per pound. Today, the market is 700 points lower. Some of these institutions act like true Jim Jones of the commodities, the only difference being that they just watch the collective suicide. And examples abound from both sides, which continue doing the same thing, that is, using toxic structures of illusory protection, hoping for different outcomes. They rarely work out.
So, dear readers, the fact is that the sugar futures market in NY closed out the week with July/2024 at 18.10 cents per pound, after having been traded at 17.95 cents per pound on Wednesday, the lowest price since October 31, 2022. The drop over the week represented a shrinking of R$155 per ton for the possible pricing of the 2024/2025. For 2025/2026, the drop was R$125 per ton and for 2026/2027 it was R$60 per ton less.
Imagine a sugar trader who fell into deep sleep for a little over 18 months. Upon waking up, he stretches himself, yawns and rushes to check up on the sugar quotations on his cell phone. To his surprise, the price is exactly where he left it! He thinks, “Wow, the sugar market must have been pretty calm while I was sleeping. How lucky I am!” Little does he know what hardships the market faced over this period. Our unconcerned trader, oblivious to all this, breathes a sigh of relief. He still has no idea of the white hair he would have gotten, the sleepless nights and the emergency meetings with clients, had he been awake. With a smile on the face, he asks himself if it might be a good idea to take another nap. After all, ignorance is a blessing.
The funds increased the short position by almost 25,000 lots and now they carry a total of 72,541 lots short (equivalent to 3.7 million tons of sugar). Since this position refers to last Tuesday and yesterday we had an increase in the open position, everything leads us to believe that the funds probably have more than 90,000 lots short. It’s worth commenting on what the funds have done with cocoa and coffee recently, increasing the prices suddenly and then blowing the market up more strongly. In sugar, however, they started out the position by selling and taking advantage of the environment of apprehension that made the market settle positions stemming from the OTC market as well as some sell stops that were added on. I believe that there is a point of vulnerability there on the part of the funds. I will explain.
If the sugarcane fields keep up the current yield performance, eventually increasing the total production of sugarcane to the estimated 605 million tons but that can become 620 million, there is no doubt that it will be really hard for NY to go beyond 20-21 cents per pound, which if before they were support, today they have become resistance. So, that way the funds can do as they please. However, if there is any climate or exogenous event that compromises sugar availability, the question we must ask is: who will provide liquidity if they buy back their short positions? That’s the vulnerability that can make the market return to more palatable levels. I say this because at this price level in NY, neither India nor Thailand are able to compete.
According to analyst Marcelo Moreira, this has been another week with the funds/speculators “throwing the market” toward the lows of the last 18 months! Just about the next 4 maturities (July/2024, October/2024, March/2025 and May/2025) closed out on the “Bollinger band” support of the 50 days – around 18.10/18.30 cents per pound. Based on the “weekly graph” the graphs are showing a “shoulder-head-shoulder” pattern with July/2024 maybe going for 17.10 and 16.00 cents per pound! It’s really important for July/2024 to close above 18.77 cents per pound next week so as to “reverse the low trend’. As for July/2025, it closed out below the “Bollinger band” of the 50 days and it might go for 15.10 cents per pound! Over the short term, it is important to start working above 18.15 cents per pound again and break through the next resistance at 19.23 cents per pound! The producer who bought put selling call should consider repurchasing the call option and wait for a new high movement to resell the option.
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Lula is once again proving to be a leader with an old-fashioned view – worthy of the times of Ramses II – has made a disastrous intervention at Petrobras again. He fired the president and immediately appointed someone who took part in Dilma’s government, one of the darkest periods of the recent history, characterized by incompetence, destruction of the economy and losses at Petrobras. This new appointee is said to have no appreciation to the sugar-alcohol sector. It’s unnecessary to talk about what Dilma represented to our market. During her dark term, the sector lost more than R$70 billion in revenue due to her irresponsible gas price control policy. Dilma used to choose her spokespeople, couldn’t stand some leaders of the sector, as a mediocre dictator of this good-for-nothing left that plagues Brazil. This PT gang never changes and continues to jeopardize the country with its disastrous decisions. They could all go back to their sarcophagi.
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
