The month of March was marked by lower average prices for the May/20 contract in New York. This asset even showed light declines of just over 4% when compared to the same period in 2019. However, these moderate decreases occurred only due to the statistical load compared to the weak prices of the previous year, in no way translating the strong reduction of prices that the May/20 contract had in March 2020.
In this regard, the observation of the oscillation in the margin left no doubt, since it decreased almost 18% from January to February in a calculation level which left out the deepest price levels of USD/cents 10.50 seen during the month’s lows. Although the average price was USD/cents 11.92, the March closing lows reached USD/cents 10.59, and the trading lows USD/cents did 10.44. When we compare these values with the prices of early March at USD/cents 13.81, we can observe an accumulated decline of 23.32% or 24.40%. The damage may be even greater if we compare with the highs of May/20 seen in the last week of February at USD/cents 15.29, reaching 31.72% when we compare the two ends of the year’s highs and lows for this asset.
Sugar lows in New York for the current driver contract basically stem from the unfolding of the COVID-19/oil/exchange rate crisis, with this vector accounting for 85% of the current downward movement described above. The remaining 15% would normally occur with the arrival of the 2020/21 season in the Center-South, with a volume of 600 million tons of sugarcane for this region alone, plus 50 million tons in the Northeast. Moreover, even before all this crisis, SAFRAS & Mercado already expected a production mix with 44% for sugar and 56% for ethanol, which in itself already represented a clear limit to the future curve of New York prices with a high at USD/cents 14.00. Today, with the consequences of this crisis, the future curve already operates with maximum prices for assets in 2021 and 2022 around USD/cents 12.00. It is a really big jump for a single month.
Furthermore, SAFRAS & Mercado takes into account the real probability of new falls for the May/20 maturity in April, with the price line of this asset subject to lose the level of USD/cents 10.00 over the first half of the month. This should occur in the face of the uncontrolled contamination of COVID-19 in the United States, with President Donald Trump increasing pressure to resume activities exactly at the moment of exponential escalation of the curve of new infections and deaths in the country. These new effects added to those already known should greatly increase the downward pressure on the demand for commodities and asset prices, resulting in the scenario of new crude oil lows below USD 20.00, with the May/20 contract below USD/10.00 cents and the dollar heading for BRL 6.00. In this context, in March, the average closing price of the May/20 contract on the New York exchange was USD/cents 11.93. In comparison with the same month of the previous year, there was a decrease of 4.38% from the average of USD/cents 12.47. In the margin, there was a much more intense devaluation of 18.88% when compared to the average of USD/cents 14.70 seen in February. Expanding the analysis scope, we see that the average price of March this year was 15.67% below the average price for this period during the last five years, which currently fluctuates around USD/cents 14.14. In the previous month, current prices had been 1.59% lower than the five-year average for the period that, until then, fluctuated by USD/cents 14.94.
As a result, the average price of the last five years between February and March showed a devaluation of 5.34%, while the March/20 price level ended up decreasing by 18.88% in the margin. Therefore, the reading is that there was a negative movement on the part of the two levels, with the price level falling so much that it significantly influenced its five-year average. In this context, there was an increase in the negative distance of the price level from its historical average, given the strong decline of the same, reversing a pattern of greater proximity and even the probability of positive fluctuations in the price level compared to its five-year average that could be observed until February. For the month of March, SAFRAS & Mercado’s expectation was for prices around USD/cents 13.50, which was 13.18% above the effective average price of USD/cents 11.93. For April, SAFRAS & Mercado expects prices to be around USD/cents 11.00, which would mean an annual decline of 13.99%, a 7.78% decrease in the margin, and a 20.65% fall from the five-year average for the same period.