The Sugar market is still pressured by the devaluation of the real against the dollar and also by the Oil accumulating falls on the foreign market. The Gas price increase by only 3% announced by Petrobras (SA:PETR4) and starting this Friday was badly perceived by the Brazilian stock market, which expected a higher percentage so that the state-run oil company could start slowly making up for the huge loss it has had with price subsidies.
Now, the sugar price in NY reacted positively reaching up to 38 points for March/2015. Ultimately, it closed the week at 15.69 cents per pound with a 33-point negative variation against the previous week. The other months varied between a 5.50 and 10 dollar-fall per ton in the week.
Technical analysts say that the futures sugar market can still fall even further. Since this is not really up my alley, I’d rather focus on what I can explain. Let’s see. This week the dollar was being traded at 2.5750 on the spot market. If someone made a dollar NDF (non-deliverable forward) maturing within ten months and took advantage of the rate for October 2015 at 16.68 cents per pound, he would have a price fixing between R$1,050 and R$1,100 per ton. The 2014 average is at R$872 per ton. That is, for two years, things have been pretty much the same price-wise.
Putting this into perspective, we can infer that the 2.5600 exchange rate practiced this Friday, and using the average closure in reals of the year mentioned above, March/2015 theoretically would have a support of 14.85 cents per pound, that is, about 100 points under what the futures market is at today. However, if we consider that export businesses are being made with a 100-point discount for delivery in November, the market is above its support.
Brazil should demand 86.3 million ATRs next year to meet the export market and internal consumption needs which together add up to 36.7 million tons of sugar and ethanol which should demand almost 28 billion liters, taking into account the internal market, exports and others. That is, in this equation, the Center-South will have to produce at least 575 million tons of sugarcane for the 2015/2016 harvest. Considering the critical situation in which the sector is and with few graceful ways out of it, admitting that we need to grow almost 3% next year might sound like a joke.
The English newspaper The Economist has published an interesting article comparing the present oil values to the minimum price level necessary so that the producing countries could carry on with their budgetary policies. The fact is that below US$90 a barrel the situation gets dire for most producers, mainly those relying on the commodity. The question that comes up in discussion groups is which the break-even value is for the pre-salt production. According to some experts in the area, Brazilian oil will become economically unviable if its foreign market quotation goes below US$70 a barrel. And, more importantly, how come this government has given up on such a renewable fuel like ethanol?
Election ploy – that is the least we can call it. What Dilma has done after getting reelected is exactly what she was saying Aécio would do. Electric energy price, interest rate, gas price are all going up, and Mantega is pointing to decreasing the role of the public banks. If Brazil were under a parliamentary regime, Dilma would have already been thrown out. It will take a lot to put up with this haughty and cheeky president for another four years.