Sugar Suffers From Abulia

The sugar market continues its trajectory downhill. Jul/13 closed the week with an accumulated drop of 12 points (2.65 dollars per ton). The remaining months also closed lower with variations between 13 and 32 points lower (2.87 to 7.05 dollars per ton). In the last 20 sessions the market has closed lower in 15 of them, in the last 40, in 27. In other words, the bears are having fun. Meanwhile, nothing or closing to nothing has changed. The external physical market continues to be slow, although the discounts have diminished slightly.

The Old Story
Change of direction in the international market will only occur when or if there is a weather problem that delays the crushing, or a combination of a logistical bottleneck at the Santos port with rains. This means the following: the market will only go up if St Peter is long. In Aug/12 we had a situation when the market dropped 17 times in 20 sessions (a record since 1961). However, to drop 20 sessions out of 40 it is something that pushes the statistical data even further. The last time that we saw this occur was in September of 2006. The record of the number of drops in 40 sessions is 30 (occurred in 1965).

Thr USD
The dollar continued making the difference in the sugar market increasing its value in relation to the real currency and encouraging the mills that were late with their fixations against the July contract to take advantage of higher prices in reals per ton since the beginning of the last month.

If we use as a parameter the value in reals (quoted at sugar closing in NY times the exchange rate, converted to reals per ton) the lowest value most recently seen was R$ 783.20 per ton on May 22nd (16.65 cents per pound multiplied by the exchange rate of that day-2.0506-then times 22.0462 to convert it to dollars per ton, added by 4.05 % of the polarization premium).

By this same criteria above described, we find that the average of the last six years has been R $ 785.00 per ton and that during this period (Apr/2007 to May/2013) the highest value was R$ 1,351.00 and the lowest was R$ 356.00. In other words, the world has been harsher with prices than it is now.

Is there any light at the end of the tunnel? Without using the usual joke as a response, the fact is that the market has been suffering from abulia, which is the inability to make decisions usually due to problems related to one’s mental or physical health. We have had an avalanche of news this week that usually would bring some relief to the market: a trading company abroad which substantially diminished its value for sugar surplus, a producer lowering its mix of sugar violently, reports surfacing here and there saying that India, Thailand and China will produce less sugar in 2013/14 and so on. The market has been so apathetic that it has been incapable of reacting to anything positive. It has been like this. But it shall pass.

A lower value of the Consecana of the one that was previously estimated by us, added to the devaluation of the real in relation to the dollar, pushes downwards the production cost of the sugar as per the Archer Consulting Model. Using the dollar at 2.1214, the Cost FOB Santos is at 15.99 cents per pound, without the financial cost, which would add almost 200 points to this value. The well-capitalized mills, efficient ones with a production cost even lower have been able still to have positive numbers in their operations. Now the remaining ones are suffering.

Crop Estimates
In the fourth estimate for the 2013/14 crop, we have slightly reduced the quantity of sugar cane to be crushed to 578 million tons, reducing the availability of sugar cane by 2.284 million tons in relation to the previous estimate. The mix for sugar has been changed to 45.65 %. This way, we estimate a production of sugar in the Center-South of 34.217 million tons and 25.106 billion liters of ethanol.

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Next week Archer Consulting begins to accept registrations for the XX Intensive Course of Futures, Options and Derivatives – Agricultural Commodities. It will occur in Sao Paulo, on Sep 24, 25 and 26. Please make note in your agenda.

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