During the month of May, the closing averages of the July 2020 contract in New York had a negative behavior when compared to the annual averages, in line with what had been seen since March this year. Despite this, in the margin there was room for gains of almost 5% by this asset. The recent upward movement of sugar closing averages in New York occurred during the start of the 2020/21 crop in Brazil, which is still not even close to the peak of its supply curve.
At the same time, in Asia we have the opposite path, with an end of season already evident and many mills in India and Thailand out of production activities. By way of comparison, while in the Center-South of Brazil nearly 250 plants were in operation until the end of the first half of May, in India this number fluctuated around 65 units. This hiatus of reduction in the availability of physical product, in both Brazil and Asia, ended up leaving the market ‘shorter’ in terms of supply, which helped sustain average prices even in May. Nevertheless, prices just did not increase more in the face of the effects of the COVID-19 crisis, which ended up reducing part of the demand activity in the short term.
However, even so, the market did not slow down, with indications of increase in premiums for VHP exports during the last two weeks of May, when these premiums rose from 10 to 28 points. The expectation of SAFRAS & Mercado is for significant new rallies for sugar in New York, and the current driver contract, October 2020, must face a scenario of increased climatic risk (coming from both the hurricane season in the North Atlantic and the monsoons in India) and reducing the cane production share in Brazil for sugar. The sugar share must fall from the initial projection of 48% to the range of 40% to 43% in the face of the resumption of the heating of the ethanol market in the region, which must return to concentrate the destination of the reaped cane for the manufacture of biofuel.
In this context, in May, the average closing price of the July 2020 contract on the New York exchange was USD/cents 10.64. In comparison with the same month of the previous year, there was a decrease of 10.01% from the average of USD/cents 11.83. In the margin, there was an appreciation of 4.72% over the average of USD/cents 10.16 seen in April. Expanding the analysis scope, the average price of May this year was 20.24% below the average price for this period during the last five years, which currently fluctuates around USD/cents 13.34. In the previous month, current prices had been 23.68% lower than the five-year average for the period, which until then was at USD/cents 13.31.
As a result, the average price of the last five years between April and May increased by 0.21%, while the July/20 price line ended up advancing 4.72% in the margin. Therefore, the reading is that there was a reduction in the negative distance of the July/20 price level from its long-term average, with the price line of the driver contract approaching its five-year average, despite some slightly larger distance. For May, SAFRAS & Mercado’s expectation was for prices around USD/cents 10.00, which was 6.02% below the effective average price of USD/cents 10.64 for the period. For the month of June, SAFRAS & Mercado expects prices to be around USD/cents 10.00, which must mean an annual decline of 12.82%, down 2.43% in the margin and 22.36% from the average price of the last five years for the same period.