The Song Remains The Same For Sugar

The sugar market in NY closed the week at a 58-point fall for July/2015, closing the session at 12.31 cents per pound – the lowest quotation since early April. Moreover, the funds, which messed up last week by keeping a long position, have already reversed it again and now are short about 12,000 lots. The other negotiation months on the futures market have kept the negative tone and shown falls between 7.50 and 12.00 dollars per ton. The potential gain for the funds is smaller this time around given that the market is really pressed what with all the bad news factored into the price.

The sugar market accumulates a 24% fall against the highest value traded in the year, which is 16.16 cents per pound on January 21. In the yearly accumulated, however, sugar has decreased a little over 15%.

It is interesting to see that oil has had a 23.36% positive cumulative variation in real this year, that is, it has indirectly helped the ethanol economic relation improve on the internal market. Gas abroad has gone up more than 21% in dollars. That is, if it weren’t for this situation, sugar would surely be more pressed.

The average closing price of sugar in NY (first month of negotiation) converted into real (by the Central Bank fee) verified since January 1, 2014 reached the R$889.35 average per ton – despite the “blackout” registered in September last year when prices melted and hung below R$800 per ton (the lowest value was R$723.79). The average for the first four months of 2015 is R$918.38 per ton - 3.8% over the value for the same period last year, which was R$884.19 per ton. Having said that, with Friday’s closing dollar, which was 3.0950, we can say that NY closed the session at about 14 dollars per ton below the yearly average, and another 47 dollars per ton above the lowest price seen in September last year.

The eighth pricing estimate for the export contracts of the mills for the 2015/2016 harvest, according to the model developed by Archer, up until April 30, 2015, is 48.92% at the average price of 15.79 cents per pound. This value is equivalent to 42.04 real per pound and the average exchange rate practiced by the mills corresponding to these pricings is 2.6623. The pricings are in average R$945.16 per ton FOB. The fixing volume this harvest is lower by 2.65 points than last harvest over the same period (51.57%) and, although the 2014/2015 pricing in dollars had been higher, hitting 17.43 cents per pound, the value in real was 2.2% lower, reaching R%924.48 per ton FOB on April 30, 2014.

The total consumption of fuel in March/2015 released late by ANP was 4.85 billion liters - 2.55 billion liters of gas A and 2.3 billion liters of ethanol (anhydrous and hydrous). In the twelve-month accumulated value, between April 2014 and March 2015, the consumption grew 6.45% coming to 58 billion liters. The hydrous consumption increased 13.17%, anhydrous 6.22% and gas A 3.94%. In absolute numbers, over the past twelve months there has been a 2.25-billion-liter increase in ethanol consumption with an upward trend since a year ago the fuel mix was 41.5% of ethanol and now it is 42.9%. Should this trend be the same for this harvest, at least another 23 million tons of sugarcane will have to go into production of ethanol against last harvest.

The federal government has canceled the decree which would take effect starting July 1 taxing the hedge operations, whose impact on the sugar-alcohol sector, according to estimates by Archer, would be R$92 million. Brasilia bureaucrats don’t show any traces of naivety in their character. Entrepreneurs in other sectors, mainly in the import sector, whose exchange hedge is vital to preserve the asset values, feared the payment of millions of real created by that tax and some of them even thought about shutting down activities in the country. Minister Levy, who is a man from the market, must have been frightened by such governmental nonsense.

An important opinion maker on the sugar-alcohol market compares the sector to the American award-winning TV series “The Walking Dead”, which tells the story of a zombie apocalypse group of survivors. “The fact”, says the expert “is that we see more and more zombies walking around.” “Before there were 3 or 4, now there are more than 15”, he adds, with the obvious analogy about the difficult situation several mills find themselves in among a few survivors. If only the comparison were made with “Singing in the Rain”.

Arnaldo Luiz Corrêa