MOMENT OF REFLECTION: WHERE DID I GO WRONG?
The week was relatively calm, probably due to the holidays. On Monday, May 27, the United States will celebrate Memorial Day, honoring the militaries that passed away in combat. In Brazil, we will have the Corpus Christi holiday next Thursday. Therefore, this is a good opportunity to review strategies and reflect, “Where did I go wrong?” Carefully analyzing points where our expectations weren’t met allows us to identify flaws, adjust approaches and avoid the same mistakes in the future.
On Friday in New York, the July/2024 contract closed out at 18.45 cents per pound, an increase of 35 points compared to last week’s close. The other contracts for the other months until March/2027 closed out with a fluctuation between stable and six dollars per ton gain. According to the COT (Commitment of Traders) report, released on Friday and based on last Tuesday’s position, the funds increased their short positions slightly, totaling a little over 84,000 lots.
I have to admit I got a little more constructive when I realized that though they added 12,000 contracts to their portfolio, the drop (from Tuesday to Tuesday) was just 31 points, maybe meaning that the market finds interested people in buying when it comes close to 18 cents per pound. Anyway, the business volume over the week was poor. But we have to point out that the funds have never been so short over the last four years.
It’s no secret that the sugar market will live under the influence of the climate. This is the major price vector, at least in the field of the fundamentals. As for the imponderable, evidently nobody knows. The oil market is so full of stock that, at other times, a fatality such as the recent death of the president of Iran in a helicopter crash, would bring huge volatility to the market just because of the perception of political problems in a region already naturally troubled and complex. And what did the oil market do about the news? It did absolutely nothing.
It was a good week for the softs. They all went up. Even cocoa, which featured the famous “dead cat bounce”, after plummeting, bounced back up slightly after hitting the ground. Someone asked me why I talk about cocoa in a comment about sugar. Well, everything is interconnected. What has happened to cocoa follows the same guidelines as what happened to sugar last year with similar narratives. Both cocoa and sugar had a sudden price high followed by a quick drop. We have already mentioned here that the funds are in a vulnerable position. Let me explain it.
Being sold short in NY at 18 cents per pound is worrisome, especially because 18 cents is the new 14 – that psychological level where the market seemed to find support. The thing is that the production cost is Brazil has gone up after the Russia x Ukraine conflict and today it is between 15.50 and 16.00 cents per FOB Santos pound equivalent. “There is still margin”, some will say, but ethanol is trading below the cost for most mills. Therefore, they balance each other out.
Just like we used to urge the mills to fix the sale of their export sugar when the prices in NY were trading at the much-missed R$2,800 per ton, today we believe that the market is providing a huge opportunity for the sugar industrial consumers to fix their raw material in cents per pound for the 2025/2026 and 2026/2027 crops, whose average prices based on Friday’s close were 18.33 and 18.13 cents per pound, respectively. I find it difficult, especially if we analyze the fundamentals for the next years, for the market to be able to stay at this level for long, a level that basically drives India and Thailand away from the international market.
Our analyst Marcelo Moreira talks about the technical part, “Another week with July/2024 being pressured, but being able to respect the 18 cents per pound (the week’s low was 18.03 cents per pound). After a slight reversal on Friday and closing out at 18.41 cents per pound, July/2024 finds next resistances at 18.46/20.12/20.97 cents per pound and relevant supports at 18.00 and 17.52 cents per pound. Warning: if it breaks through the 17.50 cents per pound, the 16.00 cents will still be a “goal” over the short term.
About the comment last week, an executive with extensive experience in the world of commodities noted, “While reading your article this week, I got to reflect on whether the trader who fell asleep is any different from those who stayed up. To me, this feeling of responsibility for the position seems to be petering out in the relationships between the trader and institutions. What we see on the market seems more like a tragicomedy than evaluated and well-conducted actions and reactions”. And two readers complained about my comparison between Lula and pharaoh Ramses II. ”Please, don’t offend Ramses II again!”, they said.
Don’t miss the in-person Advanced Course on Futures Options and Derivatives – Agricultural Commodities in São Paulo on June 25 (Tuesday) and 26 (Wednesday) . This will probably be the only opportunity this year for you to take a course that has become reference on the market and has already been attended by more than 3,000 professionals from several sectors of the agribusiness. 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
