A SEA OF SUGARCANE
The sugar futures market in NY closed out the week with October/2023 contract traded at 25.09 cents per pound, waking up some bulls that had been asleep and renewing their expectations of seeing sugar in NY with the digit 3 in front of it. As “never” is a word that doesn’t exist in commodities – whose terrain is well known for the fertility in breeding black swans – the providential caution is recommended. But for goodness’ sake, these bulls are really optimistic.
But what matters for the bulls is that the week appreciated 77 points for October/2023 (17 dollars per ton) and 71 points for March/2024 (15.65 dollars per ton). And the March/May spread, which this scribe already found overwhelmingly strong at 140 points, closed out the week at 152 points. I’m swallowing hard here.
The rally of the market, according to a seasoned futures broker, was fed by computer system buying (algorithms and complex mathematical models) that don’t come even close to the fundamentals. But what really matters for the bulls is that the market went up 193 points (45.55 dollars per ton) against the previous week’s low. And the funds increased their long position again, though with a little more than 4,500 lots. Now, the non-index funds are long by 119,000 lots.
Last week we said here that July and August are months with low volume and this can bring more instability to markets fed by robots and algorithms. I can explain: little volume makes the market fluctuate more. Well, just look… the average of daily trading sessions in July is 82,500 contracts (in the first 10 sessions), a volume 62% smaller than the daily June average, which was 219,300 contracts.
Being rather simplistic, if we assume that 60% of the traded volume at the exchange is spread, we can infer that the number of contracts traded every day aiming the price trajectory is 33,000. So, in 10 days the total volume traded having the trajectory as a goal is 330,000 contracts. Over the same period the open position changed just 19,000 contracts. That means 94% of the traded volume is day-trade, typical of funds of algorithms that aim to go home even so they won’t have to pay for adjustments. That’s my point of view.
Over the week, the real appreciated just 0.34% against the dollar, closing out Friday at 4.7735. The average values of NY quotations converted into real per ton showed an improvement of R$ 75 per ton for 2023/2024 (simple average of October/2023 and March/2024); R$ 41 per ton for 2024/2025 and just R$ 10 per ton for 2025/2026.
I continue suggesting pricing exports for 2024/2025, whose average value based on Friday’s closing and taking into account the NDF (Non-Deliverable Forward), found R$2,561 per ton. Compare this value to its estimated production cost for 2024/2025.
Speaking of price fixing, the Archer Consulting model pointed out that in the accumulated of June 30, 2023 the mills were fixed by a total volume of 4.5 million tons of sugar for the 2024/2025 crop at the average price of 20.51 cents per pound, equivalent to R$ 2,426 per ton FOB Santos, with pol. Half of this volume was fixed in late April. Assuming that sugar exports for the 2024/2025 crop are 26 million tons, the fixations represent 17.3% of the total volume. I confess that I was imagining a number close to 25%, but this is how the model is. Models also make mistakes.
Curiously enough, a year ago the fixation volume of the 2023/2024 crop was higher: 24%. What can explain the smaller percentage of fixation of the 2024/2025 crop is the credit restriction imposed by the trading companies to the mills and a narrower horizon of fixation because of the stress on cash flow they suffered throughout this year. Once bitten, twice shy…
As we stated here last week, only the climate (interruption of crushing due to too much rain, El Nino, for example) can add a dose of optimism to the market. Meanwhile, India should close its crop producing 33.5 million tons of sugar, just half a million ton below the first forecast. However, the sugar for ethanol production was – according to some analysts – better than expected: 5.3 million tons of equivalent sugar. Now USDA points to an export of 12 million tons of sugar from Thailand for the 2023/2024 crop (which starts in December). In short, there is no stress on sugar availability in sight.
In the Center-South, there seems to be widespread agreement that the Center-South won’t be able to crush all this sea of sugarcane that will be produced. So, the million-dollar question is how much sugarcane will be left uncrushed for next crop: 10, 15 or 20 million tons?
Next year, therefore, a lot of mills will have to start crushing sooner if they want to crush this sea of sugarcane. How about the world? Will it be flooded by sugar too?
Archer Education is sponsoring on September 20 (Wednesday) and September 21 (Thursday), 2023 in Ribeirão Preto, the course Ethanol Marketing Intelligence on the Fuel Market, given by Tarcilo Rodrigues. This is the third edition of a course that has already become a benchmark in the sector due to the strategic view of all the ethanol marketing chain, from supply to service stations, detailing the major points of pricing, stocks and demand all through the supply chain. Contact priscilla@archereducation.com.br for further information.
You all have a great 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
