June 26, 2017

NY sugar back down to lows

Good weather in the Center-South and India supersede bullish macro scenario and CFTC

Even with the CFTC report showing that the speculators’ net short position will likely exceed the historical maximum, sugar futures fell yet again in today’s session, with that category increasing bearish bets. In addition to the funds’ positions, the market also ignored the macro scenario, characterized by the USD’s depreciation against the BRL and the second straight rally for oil on the NYMEX.

The main bearish factor was weather in Brazil’s Center-South. Meteorologists expect weather to continue on with cool, dry conditions, which is ideal for the plants’ TRS, thus benefiting sugar production.

In India, total precipitation from monsoons is still 2% above the historical average for this time of year, even with monsoons arriving 11-16 days late in the northern regions. For the two states that need these rains the most- Maharashtra’s total precipitation was 9% above normal while Karnataka’s volumes were similar to the historical average.

Despite hot, dry weather in Europe’s top beet-producing countries, France and Germany, JRC-MARS, an agricultural survey agency linked to the EU, maintained average productivity estimates for the bloc’s 2017/18 crop. Therefore, average yields are expected to be 73.9 t/ha, 3.1% above the five-year average and 2.1% above the last crop.

Estimated agricultural productivity for EU beets (t/ha)

Source: JRC-MARS.

As for France, the survey agency indicated that soil moisture is significantly below normal, though rain in coming weeks should be critical for productivity as there are still no consolidated impacts.  In Germany, plant development is expected to be normal despite reduced agricultural productivity estimates by 0.3 t/ha.

Conversely, the producer country with the least worries, Poland, had its productivity estimates reduced by 2.9 t/ha. Due to the opposite conditions: moisture and cold. Another important beet producer that had lower productivity estimates was the Netherlands - by 2.1 t/ha. However, some projections rose in less relevant countries such as Spain, Lithuania, Finland, Italy, Romania, Croatia and Sweden.

Hydrous production already offering better returns in Goiás

Even with a 2.2% drop in hydrous prices in Goiás last week, which fell back to lows in recent years, production is already 1.1% better than VHP sugar exports for state mills. According to INTL FCStone estimates, considering current ethanol price levels and the USD exchange rate, in order for sugar to provide better returns for Goiás mills the price of the nearby contract on the ICE/NY would have to head back to at least US¢12.75/lb.

Arbitrage: VHP exports and domestic ethanol sales - Goiás

Source: INTL FCStone.

For anhydrous ethanol, which regional mills have preferred, production provided returns equal to 14.4% more than raw sugar exports. For this variety to compensate, the price would have to rise to US¢14.4/lb on the NY exchange.

Sugar Prices

Sources: ICE, Liffe, CFTC, CEPEA/Esalq, Consecana and INTL FCStone.

Ethanol Prices

Sources: ANP, CEPEA ESALQ, BM&F Bovespa, OPIS, Nymex, CME and INTL FCStone.