Sugar Had Gone Down 300 Points

New York had another week of low prices. Since the fire at the Santos port last Oct 18th, when the market saw for the first time in 11 months the 20 cents per level being traded, Sugar in NY has gone down 300 points. Friday closed with Mar/14 trading at 16.29 cents per pound, lower 30 points for the week (6.60 dollars per ton), accompanied almost in parallel by the other months being traded along the price curve.

Anhydrous and hydrated have a better return for the mills today than sugar for exports. Although the production costs as per the Archer model indicates that today, sugar for exports without financial costs liquidates at 15.38 cents per pound FOB Santos (with financial costs, it would go up to 17.22 cents), it is being traded at a discount against Mar/14, while anhydrous and hydrated, as per the figures informed by ESALQ, liquidate for the mills at an 18.80 cents per pound sugar equivalent for the anhydrous and 17.90 cents per pound for the hydrated. Very good.

Even though the sugar demand in the international markets is absolutely discouraging, to the extent that foreign buyers seem to be already on holidays, there has been an excessive downside correction in the prices in reals per ton. Combining the NY close with the dollar rate, we get close to R$ 850.00 per ton in the week gone by, below the annual average of R$ 863.00. There is something out of place here. Whoever has already fixed their prices for the beginning of next year’s crop is not in a hurry now to fix more sugar at current levels.

Either NY has fallen more than it should or the dollar has increased in value in relation to the real less than it could have. The funds liquidate their longs licking their wounds (realizing losses), while some producers partially repurchase their selling hedges accompanied by the trading companies. To sum it up, although there is discouragement in the commercial areas, few believe that the market will trade at the recent lows of 15.93 cents per pound occurred last July 16th.

We have said that it is difficult at this juncture to estimate the sugar cane crop for the next crop year, so we will do the inverted calculation. We will estimate the demand in a reasonable manner and will see, from that, the sugar cane needs.

First, the exports. The accumulated in the last 12 months has reached 27.264 million tons of sugar, a volume that is 14.9% higher than the same period one year ago. We will assume that for the next year, Brazil will export 25 million tons. We will add to this volume 12 million tons consumed in the internal market.

With ethanol, we will conservatively assume that the vehicles fleet in the coming year will grow only 3%, and that the percentage of flex vehicles owners that use ethanol will not increase in the coming year. In other words, around 25% to 30%. The mix of anhydrous to the gasoline will not be changed as well. The ethanol exports in the last 12 months accumulated is at 3.2 billion liters. We will reduce it in half, to have the effect we want to demonstrate.

We will add to this demand, the fine ethanols and other products, roughly 1.5 billion liters more and of course the internal demand that we will estimate at 22 billion liters of anhydrous and hydrated (in the period Apr/14 to Mar/15).

Converting every product to the ATR, the estimated demand as per the Archer model shows a need for 85.2 million ATRs. If we take as average 133 ATRs per ton of sugar cane, we will see that to attend to the conservative demand above noted, we will need to crush in 2014/15 around 618 million tons of sugar cane.

Higher sugar production in Mexico and Thailand, to mention only two, funds liquidating and dark clouds over the real currency, they all can put pressure in NY. However, a stronger dollar is a deadly weapon for the government and its adjustments on the gasoline price. We cannot forget that the production costs in other countries that compete with Brazil are higher than ours. Prepare yourself for 2014. We will have a year with all indications pointing to greater price volatility. The sugar traders that I know are beginning to get sick due to the lack of adrenaline in their nervous system.

This is the last commentary for the year. It is time to recharge batteries and thank all clients, friends, partners, collaborators and readers who have supported Archer this year. Besides the more than 3900 people who receive the commentary directly, we have 400 others who get its English translation, plus some others who read the commentary in different sites and agencies which reproduce it for their clients. The weekly edition titled “Breathing without the ventilator”, for instance, published last August 9th, had 1765 access on the site. This year our site has received more than 25000 visits, a growth of almost 5% in relation to the previous year, from 78 countries and 903 cities, such as Zhukosky, Cali and Santa Maria da Jetiba.

To all who this year have helped us to consolidate the Archer position in the market, our many thanks and wishes of happy holidays and a happy new year.

We will be back with our commentaries on the weekend of January 18th 2014. See you then.