Analysis of the sugar market
The sugar market continues its spectacular performance with no prospect of falling to the first quarter of 2010. The price levels we saw so far outweigh the more optimistic participants in this market. Personally, I thought 26.25 was the top. After that the market has negotiated new highs reaching a peak of 28.90. In the export market, some deals were made with a premium of 10 points on the March, for immediate shipment.
There are several points that support the optimism for 2010. The hard part is translating them in terms of price, because the curve of the sugar in NY is too inverted. That is, for the October 2010, for example, has the same level of March 2010, we would need a high of 34% in that month. The March 2011, in turn, is 30% below March 2010. These distortions occur because the feeling is of extreme volatility and supply and demand for short-term are very susceptible to any change in availability.
Still do not believe these spreads mad paying more than $ 60 per tonne premium for a sugar for May delivery on a sugar for July delivery! That will not be sustained. As soon as we have a clearer picture of India, whose government has approved the extension on the deadline for importation of refined sugar duty-free and allowed the processing of demerara aiming to increase supply and ease pressure on prices, and Brazil, which is expected to grow volume of sugar, the tendency is for prices to adjust the curve inverted pass to have an inflection lower in shorter maturities. No popular, prices should fall. But will they? In March may be more difficult. Especially when it has the world talking about sugar. And many gurus are betting that a high not seen yet, because they believe that the prospects for recovery in production in India are very committed. If true, this climate may prevail in the first quarter
this year. This is the shadow that hangs over the market. Remember that the word guru, among many etymological interpretations, based on the metaphor of shadow and light, where the Gu means darkness and Ru who dispersed. Therefore, the guru is one who removes the darkness of ignorance.
Brazil has ended the year 2009 with exports of sugar 24,294,090 tons of sugar a total of U.S. $ 8,377,818,489, with an average price of 15 cents per pound. This volume represents an increase of 24.75% over the export of 2008. The estimate of the Archer Consulting in July 2009 was an export of 24 million tonnes. The alcohol in the same period was 3.296 billion gallons, raising U.S. $ 1,337,909,795, with an average price of U.S. $ 405.90 per m3. This volume represents a drop of 35% compared to 2008. Our estimate was 3.3 billion liters.
In 2009, Brazil exported 4.8 million tons of sugar more than the previous year. Exports to India in 2008 were 160,000 tonnes in 2009 reached 4,367,000 tons, or Indian imports accounted for 87% of the volume exported by Brazil over the last year.
DISPERSE THE SHADOW
According to the model of Archer Consulting, set the volume of sugar in Brazil for the 2010/2011 season until the 07th January, including what was rolled from the 2009/2010 harvest is 6.934 million tons with an average price (without scrolling) of 19.91 cents per pound. The lack of credit and restricted by the trading companies to allow the establishment of plants for periods longer boarding are the main reason for the modest amount (less than 30%).
To accommodate the volume up, the trading companies should have sent a margin call due to the change in the market for the average price set a volume exceeding $ 1.2 billion resulting in a substantial reduction in the cash flow business at the equivalent more than 2.2 million tons of sugar. The open position in options is close to 1,200,000 contracts. Delta it is equivalent to 440,000 futures contracts. The puts (options) have delta average of 0.10 while the calls (call options) have average delta of 0.56. This shows that many people have done using protective fence, or the purchase of a put (put option) the concurrent sale of a call (option) for even lower margins until they see the options futures contracts.
The correlations between the prices of sugar ESALQ, NY sugar and anhydrous and hydrated alcohol are increasing, making the hedge structure of a product using the NY stock exchange. On the one hand this is good because it gives more security to those who want to structure their hedges using alcohol or ESALQ NY, on the other slows down the urgency of having a futures market for ethanol as parallel structures seem to be working.
The volatility of the options was up 6% last week. It is still very high which does not encourage the purchase of options.
The Fund Dummy Archer Consulting, adjust the position every time the limit risk exceeded 200 lots purchased or sold. Thus, during the recess of this report, as reported, on 18/12 sell 1350 puts (options) of March/2010 exercise price of 23.50 cents per pound and collect a prize of 0, 85. Thereafter, 24/12 bought 200 lots (always in March/2010) to 26.96, a day 5 / 1 buy more 200-27.91, a day 6 / 1 over a purchase from 200 to 28.54; days 11 / 1 sell 200 to 27.30 and day 13 / 1 bought 200 lots on 28.12. Our position on Friday was only 3 lots sold. We adjust the position if the March negotiate 26.78 or 29.39 cents per pound. We have an accumulated profit of U.S. $ 3,583,807.90 with annualized return of 333.75%.
Source: Archer Consulting