Sugar Prepares For A Tough Year

The price of the oil barrel accumulated a 12% fall on the foreign market only this October (the yearly accumulated value is at an 18.5% loss) allowing the government to hold off on an eventual gas price adjustment.

Although there are rumors that a 5% increase is about to be announced, until it happens the sugar market feels that the parity with ethanol necessarily moves the price curve below the production cost and, therefore, foresees that more sugarcane will be destined for the production of sugar at the start of the 2015/2016 harvest. Hence, it caused NY to plummet this Friday when March/2015 closed the session slightly over 16 cents per pound.

Over the week, the loss was at 8 dollars per ton, trading months depreciating between 17 and 36 points, with more evident pressure on shorter maturity months.

Export businesses on physical are practically paralyzed. The small volume which was traded basically showed the same discounts given last week, that is, between 100-115 points. Spreads are steadier - with May/July 2015 which closed at 30 points with an 11.25% carry a year standing out.

Some traders abroad are speculating that the real can reach the 2.700-2.8000 low by the end of the 2015 which will come with the deterioration of the Brazilian economy and the bad mood with which the world is looking at Brazil after Dilma’s reelection. If we find this scenario feasible and taking into account the production cost of the mills at about R$800 per ton and R$900-R$1,000 per ton tops for as pricing purposes, July and October 2015 could in theory still fall at least about 100 points. This perception holds back any rally on the market.

The sector has to prepare for an even tougher 2015. Recent news on financial problems involving a great group of the sector angers the financial agents and impacts the mills whose negotiations are in progress. Banks have set up more collateral requirements just to renew credit lines which are about to expire. New money is hard to get. It is wise for the banks to be creative, without losing the realistic attitude towards the present scenario, at the risk of shooting themselves in the foot. They need to bring down the patient’s fever without overdosing and risking having hypothermia.

ANP (National Agency of Petroleum) has released the monthly consumption for September/2014: 1.08 billion liters of hydrous and 3.78 billion liters of gas C. With these numbers, the 12-month accumulated value jumps to 55.8 billion of consumed liters, or 9.23% over the same period last year. Hydrous consumption in the last twelve months increased 1.8 billion liters while gas C consumption (which contains anhydrous) increased 2.9 billion liters. Fuel mix for automobiles and light vehicles in Brazil is at 41.3% for ethanol and 58.7% for gas, a 3.5-point gain for ethanol in twelve months. Too bad the price doesn’t help.