Beware of the Orangutan
The July/2022 contract on the sugar futures market in NY closed out Friday’s session at 19.10 cents per pound, a small negative variation of just 5 points, equivalent to US$1.10 per ton. The real devalues contaminated by the deterioration of the macro scenario (American interest and inflation rates, lockdown in China, Russia and Ukraine war) and by foolish people who take turns dumping their stupid words on the market on a daily basis in their election campaigns.
The poor performance of the sugarcane crushing in the Center-South at the start of this crop leads to a correction of most analysts’ production estimates, which were around 555 million tons but now tend to 530 million tons.
In addition to the reduction in sugarcane volume, the mill owners are also worried about the reduction in area (which is migrating to other more advantageous cultures, such as grains) and the productivity (ATR lower than expected). However, the sugar futures market in NY hasn’t reacted to this feeling yet, surely due to a huge volume of sugar already fixed for this crop – around 20-21 million tons.
If there is a reaction from future prices, it should occur as the crushing continues and more accurate numbers emerge from production units. Meanwhile, the price curve in NY for the three maturities which correspond to the Center-South crop show a slight carry equivalent to 2.50% per year, prompting industrial consumers to put off their purchases as long as they can.
Besides the passive performance of the futures market, there is India amazing performance in this crop, which should peak with an extraordinary export close to 10 million tons of sugar, an unforeseen volume just 6 months ago.
And the country has not just surprised us with its export. It has done the same with sugar production (35.5 million tons against 31 million last year), ethanol production (3.5 billion liters against 2.4 billion last crop) and with the domestic sugar consumption, recovering from last year (26.5 million tons) and reaching almost 28 million tons this year.
Therefore, as can be seen, the world is well stocked with sugar. The business commitment of the mills to sugar production that they have already sold and fixed in huge volume but still haven’t produced, should restrict new sales of the product and maximize ethanol production that, despite the restraints on gas price adjustment by Petrobras, today at an unbelievable lag of 30%, was trading at equivalent values to sugar in NY plus 20 points on Friday.
Let’s see how long Petrobras will hold off on readjusting fuel prices, even after the President’s statement comparing the amazing profit announced by the company last Wednesday to “raping” Brazilians, pretty much the level of language inherent to His Excellency. The sugar-alcohol industry had better beware because not only this candidate but also the other one – being both populists – will carry out the act mentioned by the President against the sector by conducting this harmful policy of populist prices at the oil state-owned company.
Everything indicates we are headed to one crisis after another, regardless of who sits in the chair in Brasilia in 2023. Under this dark cloud sky, fixing sugar prices for the next crop (2023/2024) in real per ton or in pounds without insurance seems as risky as walking into a dark 10-square meter room knowing there is a lurking singleorangutan in there.
Our first estimate for the fixation volume of the mills for export sugars of the 2023/2024 crop shows that 17.5% of the export volume of that crop is fixed at an average price of 17.26 cents per pound without polarization premium. The fixation corresponds to R$2,259 per FOB Santos ton, with polarization premium, or R$95.09 per pound, with polarization.
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
