WORLD SUGAR TRADE IS ALL ABOUT BRAZILIAN LOGISTICS, SHORT TERM.
Sugar prices (Futures) are one of the most volatile amongst Commodities as a large amount of the World Sugar Trade (going from A to B) tends to be sold on a premium basis and hedged against Futures.
Producers are natural sellers and “long” many crop years ahead. As we know Cane can be harvested 3 to 7 years (once planted!) and Beet, despite the land is rotated, tends be a long-term crop also. So, for Producers they just need to “feel” the market and decide how far to sell, as long as they find a buyer (usually a Trader) or a broker that offers credit lines (less and less) to take the Futures on.
The mega rallies that Sugar encountered in the past 30 years (not every year) and most recently in the past 15 years has reduced the “appetite” Traders have in carrying “risk on” (long cash / short futures).
Managing risk and working capital is becoming more challenging given the volatility and higher costs. The rich Companies have to decide where to deploy risk and capital and the “poor” ones don’t even think about it!
Since Covid-19, after prices plummeted from 16 cts (Jan 20) to just under 10 cts (April 20), prices had a long recovery all the way 28 cts (Oct 23), but like many good things (for Producers) don’t tend to last, prices plummeted to 20 cts by Dec 23.
Looking back, 20 cts is not a bad price for a producer and even greater if you are a Brazilian Mill due to a much weaker Real.
SINCE COVID-19, AFTER PRICES PLUMMETED FROM 16 CTS (JAN 20) TO JUST UNDER 10 CTS (APRIL 20), PRICES HAD A LONG RECOVERY ALL THE WAY 28 CTS (OCT 23), BUT LIKE MANY GOOD THINGS (FOR PRODUCERS) DON’T TEND TO LAST, PRICES PLUMMETED TO 20 CTS BY DEC 23.
6 | ADMISI - The Ghost In The Machine | Q2 Edition 2024
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