SUGAR / CURRENCY MARKET OVERVIEW:
March 15 sugar spent last week drifting lower on poor volume sitting comfortably within the 15.51 to 17.25 range we have been in since the beginning of September. These are levels where trade is not getting facilitated: consumers had a chance much lower a few weeks back during the last weeks of the Oct contract, and producers have time on their side given the length of the Mar contract. We are somewhat bearish on prices at these levels following the Brazilian election.
AUD has traded in a similar tight range with little macro inputs through the week to shift the current range-bound theme. Similarly the USD has marked time following a large (10%+) move higher from July. The FOMC meets this week and most likely will finish bond purchases. The Fed will stress that the next move in rates will be a while oﬀ, but the reality of the next move being up has not been lost on the markets. Equities are oﬀ their highs as the USD has rallied. We expect more of the same for the near term, looking for an eventual break of the 86.50 low down to the low 80s.
In a closely fought contest, populist leader Dilma Rouseﬀ has emerged victorious in the Brazilian election. The initial reaction of the markets was to sell oﬀ the currency, equity markets and other risky assets associated with Brazil.
We see the economic picture as being quite bleak in Brazil : inflation above the upper end of the target band, an economy in recession, current account deficit and an inability to maintain regulated gas prices. All this suggests the currency will continue to weaken from the current level of 2.50.
This is a “free hit” for the struggling Brazilian sugar producer but will also mean producers will be able to sell at lower levels in the futures market for the same return. With the large stock position, and much needed rainfall coming to CS we are much less friendly to sugar prices for the next few months.