No good news for sugar on the horizon and the market is full of discouraging news. The growth potential for the Thailand crop next year should be significant, so more sugar will be offered which equals more pressure on prices, to the dismay of the bulls. The demand in the international markets continues with no big volumes being traded.
Fuel Pricing
The icing on the cake, if you will, is the apparent suspension of the discussion at the Petrobras Council regarding the methodology for fuel prices correction to align them with the international markets. This so called methodology may have been discarded already. The government itself wants to have the power to change prices as they wish. Dilma and her cohorts are more worried about next year elections so the hell with the cash flow problems that Petrobras currently has. What we should see coming is an increase of 5 % to 7 % on gasoline prices, that today are 12 % off in relation to the international markets if no correction takes place.
In NY, in the short thanksgiving holiday week, the futures closed lower between 20 and 27 points, along the price curve to Oct/16, with drops between 4.50 and 6.00 dollars per ton. The price curve for sugar in NY is becoming an enormous cash and carry, very well delineated.
The books say that in a cash-and-carry market there is an equilibrium between the supply and demand, encouraging the buyers to postpone their purchases, even if they see higher prices ahead, as long as the price increases are offset by the cost of financing and warehousing of the product during the postponement period. The piece that does not fit in this puzzle, is that normally the funds are short in markets like this. In the rolling of their positions, they usually repurchase the product at lower prices that they sell in the next expiration month, showing therefore a portfolio gain. However, this is not what we are seeing in the sugar market currently since we have cash and carry but the funds are long instead. Well, who is going to be right in the end? The funds or the market? Only time will tell us.
Options
The anemic historical volatility of the market has not been allowing attractive operations with options. Any structure that only allows the selling of calls or puts has limited possibilities of success. Unless, of course, these operations are combined with the buying of options or futures that zero the delta. Aside from these, it has been really boring to operate in this market if you are one of those traders that are used to having juicy options with fat slices of time-value. To give you an idea of how boring it has been, in the last 3 months, only 8 sessions had oscillations greater than 2 % (difference between the low and the high for the day in relation to the previous close). This year, 55 sessions only had oscillations greater than 2 %. In 2012, there were 164 sessions (almost 2 out of 3). In 2011, 225 sessions with more than 2 % (9 out of 10). In 2010, 244 sessions (almost all of them!!). Definitely the market lacks adrenaline now. I think watching a chess tournament will be more thrilling than this market.
The daily volume of contracts traded has been low too. The 20 days average reached the mark of only 78.854 contracts, the lowest since Jan/13. More than 28 million futures contracts have been traded in 2013, and the projection is to end this year with less than 30 million. In other words, maybe the market will grow 2.46 % this year, in line with the hedging demand. If these numbers make sense that is.
The consumption of fuels for Oct/13 as divulged by the ANP, reached 1.01 billion liters of ethanol hydrated and 3,64 billion liters of C gasoline. The total consumption in the 12 months accumulated reached 51.261 billion liters, 5.87 % above the same period in the previous year. The gasoline consumption has grown only 1.63 % in 12 months and it has been practically unchanged since the end of 2012. The big jump in consumption has occurred with the anhydrous (which goes in the mix with gasoline), with a growth of 18.29 % in relation to the previous year. Hydrated has grown 9.59 %. Probably we will close the year 2013 with an increase of consumption very close to 3 billion liters in relation to 2012, out of which 1.06 billion of hydrated and 1.82 billion of anhydrous, with gasoline only having 122 million liters of growth. The changing of the percentage on the mix from 20 % to 25 %, occurred last May, has diminished the consumption of A gasoline in more than 1.4 billion liters.
Have a good week.