VOLATILITY AND NARRATIVES IN THE MIDST OF POLITICAL AND ECONOMIC CHAOS
The data released by UNICA last week reveal a significant increase in sugarcane crushing in the Center-South, which grew 19.49% against the same period last year. 95.4 million tons were processed against 79.8 million tons the previous year. Sugar production also registered a significant increase, with a growth above 25%, totaling 5.14 million tons compared to 4.1 million tons last year. The sugar mix over the period reached 47.68% compared to 45.37% over the same period the previous year. Though this is old news, it’s important to point out that the crop is progressing pretty well; so far, there haven’t been any reasons to worry about its size.
The market is based not only on news but also, and mainly, on narratives. The concerns over the drought in the sugarcane regions of the Center-South are legitimate. However, it’s too early to make diagnoses about the alleged water deficit that could affect the sugarcane production. According to what an experienced producer mentioned, “The crop is doing pretty well, thanks”. If the drought drags on, “we will just feel some impact after August; so, there is still plenty of time for us to watch the developments”.
And how has the market reacted to all this? Well, the market needs volatility, or rather, the speculators thrive on volatility, and the narratives are crucial ingredients in its making. This week, the COT (Commitment of Traders) data released by the CFTC (Commodity Futures Trading Commission), an American regulatory agency on the commodities market, showed that the funds stayed practically unchanged in their short position, which adds up to 81,725 lots, based on last Tuesday’s position.
The sugar futures market in New York closed out the week with the July/2024 contract at 18.96 cents per pound, a 51-point increase against the previous week, a little over 11 dollars per ton. With the Brazilian real devaluing, closing out the week at about R$5.3500 (a drop of 3.4% over the week), the average of the contracts for July/2024, October/2024 and March/2025 went up R$125 per ton against the previous week. The averages of the 2025/2026 and 2026/2027 crops increased R$87 and R$60 per ton, respectively. We estimate that the devaluation of the Brazilian real over the last 3 months (when the exchange rate was at R$4.9350) contributed to a loss of 150 points in the sugar in New York (33 dollars per ton).
The sharp devaluation of the Brazilian real is not only a reflection of the macroeconomic scenario which doesn’t believe in the reduction of the North-American interest rates after the amazing number of job creation in the USA in May, way above expectations, but also of Lula’s invaluable contribution and his incredible ability to surpass the nonsense featured by Dilma, decreasing the country’s fiscal credibility, increasing legal uncertainty and driving away foreign investors. In the midst of this chaos, the Minister of Finance, Fernando Haddad, apparently without anything better to do in life, visited the Vatican for an audience with Pope Francisco on Thursday. I guess he went to ask for some divine intervention.
The energy market is still anemic, with oil dropping about 4% over the last 30 days. Out of the soft commodities, sugar leads the drop with 5% over the same period. It’s difficult to be bullish given the circumstances.
About the technical part, according to our analyst Marcelo Moreira, July/2024 closed out the week “smack” at 19 cents per pound after testing and respecting the first support of the moving average of the 9 days of 18.73 cents per pound. With the maturity of the options coming up on June 17, it’s advisable to pay attention to the 19 and 20 cents per pound strikes with open position in the “call” options at 5,300 lots and 7,100 lots, respectively. As for the “put” options, attention should be paid to the 18.00/19.00/19.50 and 20.00 cents per pound strikes with the open position at 3,800 lots/6,300 lots/2,100 lots and 5,000 lots, respectively! The next important supports are at 18.73/18.00/17.30 cents per pound and resistances are at 19.58/20.79 and 20.99 cents per pound.
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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
