Global apathy
Sugar got out of this week of widespread downturn in commodities, especially in the energy sector, unharmed. The futures market in NY closed out Friday with March/2023 at 18.82 cents per pound, 14 points above last week’s close, equivalent to a little more than 3 dollars per ton. Coffee took a 10% fall, while the quartet made up of gasoline, natural gas and type-WTI and Brent oil showed falls from 4% to 8%.
The global atmosphere is one of despair toward the macro scenario pointing to a continuous increase in interest rates on the American bonds and toward the inflation rate there and in Europe baring their teeth relentlessly. So, any perspective of growth among the major economies of the planet fades away. To make things even worse, new blocks due to COVID happen in China, which makes the greatest oil importer in the world shake the energy market.
Domestic consumption slowdown, be it due to inflation, due to the shrinkage of household income and interest rates which curbs the carry of stocks or their replacement, forecasts that the scenario for commodities in general will still continue to be clouded for a long time.
Crushing in the Center-South over the last fortnight showed a drop of 10 million tons of sugarcane if we compare it with the same fortnight last year. The 25.3 million tons of sugarcane crushed over the two weeks represented the smallest volume in more than a decade and a half. The rains that held back the crushing and can push the sugarcane left to be crushed in the crop until March next year can cause a drop to 525 million tons in the Center-South crop total. That’s nearly the same number of the 2021/2022 crop (523.1 million tons).
Meanwhile, India should soon announce its export policy for this crop. The Indian government should publish the export volume in two tranches, distributing a volume right away and the balance probably in February/March next year. Some sources say that the volume should be based on 80& of the production average of the last 3 years. This should come close to 8 million tons of sugar. Let’s wait and see.
This October, 800,000 tons still related to the 2021/2022 crop, which ended recently, should be shipped, though other sources point to 150,000 at most. Out of the current crop, if the permission to export is issued, some traders believe that the number could add up to 1.7 million tons for November and December together. But other analysts doubt this volume; they believe it will get to 1.1 million at most.
Since the Indian government has no plans to subsidize sugar this year and taking into account the gain inherent to the location of the country, closer to the great buyers, along with the fact that the Indian currency has devalued against the dollar, 19 cents per pound is an appealing price for the Indian exporter.
We project the production cost of raw sugar in that country at 18.50 cents per pound, if we take the premium estimated between 80 and 90 (just for the sake of argument) from it; this puts a floor of about 18 cents per pound in NY. As the white market in Europe will have an increase in cost due to the energy cost, which should represent between 10 to 12% of the production cost, it’s reasonable to assume that raw sugar should be in demand on these NY-base 18-18.50 cents per pound levels.
As of January and February, 1.5 million tons of sugar per month should be exported by the country. Since there is a decent demand of white sugar, the Indian raw sugar premium on the physical can go beyond the current 80-90 points. But this doesn’t necessarily affect NY.
The dollar closed out the week at R$5.3289, appreciating 2.25% against the real. So, the average values traded in NY converted in real increased 51 real per ton for the 2023/2024 crop and 18 real per ton for the 2024/2025 crop – a sluggish but encouraging recovery.
Ethanol trades with a 180-point discount on average against the NY sugar over the off-season period (January-February-March). Some traders are worried about the anhydrous ethanol availability during this period. That’s something else for us to wait and see.
You all have a good weekend
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
