NY Sugar Closes At A Low

The sugar market in NY closed the week at a low after trying for a robust recovery through the week, totally erased with Friday’s session. So, compared with last week’s closing, October/2014 closed at 15.64 cents per pound, a drop over 6 dollars per ton in the week. March/2015 also went through the same pressure, closing at a 5-dollar-per-ton low. The other months closed at lower drops between 1 and 4 dollars per ton.

Early this month, our estimate was that October/2014 still had 2.4 million tons to be fixated. With about 25 sessions to go before October expires, we estimate that 1.2 million tons still to be fixed against this month. The number is not accurate since models are faulty. The pace of fixations this month was fast. A lot of people got ahead of themselves and poured out what they had. Some rolled it over to March. In line with Nelson Rodrigues’ (Brazilian journalist and writer) purest philosophy, an experienced market executive said, “you only see who is naked when the water from the swimming pool goes down”. That is, we only realized that some companies were more exposed than they should when the market went down.

There has been substantial improvement in the discounts traded for export sugar. Businesses with 45-point discounts for loading in September, 10-point premium for loading in October and 50-point premium for loading in November, all of which against October/2014, have been included. Assuming that the composition of the book of the trading companies is flexible, buying sugar at these levels is at worst to redeliver it against March 2015, which still represents an embedded carry in dollars ranging from 18% to 23% a year. It is an interesting commercial risk to be taken at the moment.

The total amount of exported sugar by Brazil from April to July this year comes to 7.1 million tons at an average price of US$397.05 per ton – a decrease in volume a little over 12% in comparison with the same period last year. The main destinations were the United States, India, China, Algeria, Nigeria, Bangladesh and Saudi Arabia.

The drop is even worse (over 20%) in terms of average price. It is interesting to compare the average value of accumulated exports until July with the fixation estimate by the mills collected by the Archer Consulting model: 17.31 against 17.62 cents per pound, respectively - a 1.7% difference only.

As for ethanol, the total exported volume by Brazil over the first four months for 2014/2015 (April to July) was 534.7 million liters – a 38% decrease in relation to the same period last year.

On the accumulated for the year (August 2013 to July 2014), Brazil exported 25.65 million tons (about a 10% drop against the previous period) and 2.27 billion liters of ethanol (a sharp 37% drop).

Since it debuted at BM & Bovespa in May 2010, anhydrous futures contract has traded a total of 235,000 lots, or about 7 billion liters, an average of 1.68 billion liters a year, or approximately 1/6 of the country’s anhydrous consumption. Ideally, to be liquid, a futures contract would have to trade 7 times the volume traded on the physical. Given all the safeguards along the productive chain, anhydrous at BM & Bovespa has a theoretical potential to grow 42 times its present size.