SUGAR MARKET UPDATE
March 15 sugar pushed lower on the week, breaking the 15.90 support and not looking back. The low was made on Thursday, with Friday seeing a short squeeze, following Petrobras’ decision to raise gas prices 3%, and diesel 5%. Post election meetings had Petrobras looking for an increase of 10%, so on the margin we see little respite for producers with input costs (diesel) rising more, and no ability to move production over to ethanol until next season. To add to the bearish weight out of Brazil, some commentators are calling the drought oﬃcially over after the recent rains.
Whilst it is hard to find reasons to be bullish at the moment, we note there is good commercial buying being scaled below the market, and as we have spoken of before, with the Mar expiry still a long way oﬀ, producers have the luxury of time. The large caveat to this is the continued strength in the USD. Even with prices at 15.66, this translates to AU$400/mt through the lower AUD. This is also very much the case with USD/BRL (see right) which has continued to hold over 2.50
All of this points to a sugar market that at best, is capped to the topside.
The highlight of last week was the US unemployment number. Whilst, the headline number was lower than the market was looking for, revisions higher to previous data, good participa on and a lower unemployment rate, all point to a solid outcome. After the initial sell oﬀ on Friday night, the market has retraced half the losses in the following session.
USD/BRL continues to hold over 2.50. We note with interest, the Petrobras bribery scandal has one executive under house arrest. Dilma Rouseﬀ was Petrobras Chairperson, from 2003 to 2010, and with a strong opposition, we expect the political pressure to be maintained on her.
We also note with interest, the large move up in gold and subsequent retracement. This suggests the strong USD has further to run, and we continue to look for low 80s in AUD/USD, and a continual strengthening of USD/BRL, even from these levels.