Long $SGG Sugar ETF at 33.50 or 10.30 #Sugar Futures Spot PriceSugar and Brazil Relationship:
Since Brazil has been the leading producer of sugarcane in the world, the value of the Brazilian Real plays a significant role in the price of sugar futures. Weakness in the Brazilian Real against the US Dollar encourages Brazil's sugar producers to boost exports. The logic is that a lower Brazilian Real incentivizes Brazilian farmers to produce more sugar to export sell for US Dollars. However, it's likely that the Brazil Real will appreciate against U.S Dollar over the next couple months based on technical analysis and possible economic intervention from the Brazilian Government.
- U.S. Dollar/Brazil Real pairing or BRB index showing many downside trend change signals here such as bearish RSI divergence since early March on Daily chart. Weekly chart showing RSI and MACD curling down from record highs with Momentum also curling down but after a double test of highs
Growing Ethanol Demand:
In July 2019, India announced they will work with Brazil on ethanol production. Using more cane in India to produce ethanol, instead of sugar, could reduce the global supply of the sweetener. 32M sugarcane could be used to produce ethanol and electricity instead of sugar in the next year. The joint venture, named BP Bunge Bioenergia, will manage 11 cane processing plants in Brazil with capacity to crush 32 million tonnes of cane per year
- Higher crude oil/gasoline prices benefit ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar production.
- India and many other countries are boosting ethanol output for sanitisers on coronavirus pandemic
Supply Curbs:
In July 2019, India, the second largest producer of sugarcane, announced they will create a buffer stock of 4 million MT of sugar for 1-year starting Aug 1 in an attempt to limit supply and support domestic sugar prices. Also, further supply disruptions are expected in India due to Coronavirus Lockdown.
- The Indian Sugar Mills Association (ISMA) reported Wednesday that sugar production in India dropped sharply by -22% y/y to 23.27 MMT during Oct-Mar
- Sugar production in Thailand, the third largest producer of sugarcane, is expected to fall 28% to a nine-year low of 10.5 million tonnes in the current crop season as drought curtails cane supplies
India Sugar Subsidies:
In August 2019, Brazil, Australia and Guatemala have complained again to the WTO to set up dispute panels to rule on India’s sugar subsidies.
- A change in WTO trade dispute status to Panel Composed on October 28th supports the global price of sugar. This news catalyst increases the possibility of removal of India sugar subsidies. If removed, India sugar stockpiles could fall thus decreasing global supply. Now in April 2020, we can assume the dispute must be in the further into review process
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