ELEPHANTS CAN REMEMBER

?It has been over 50 years since the famous writer Agatha Christie published her next-to-last book, whose title I have borrowed above. Whoever has ever read one of her savory police novels – all of them full of mystery, suspense and apparently unsolvable murders – has enjoyed her emblematic characters’ cunning, like the Belgian detective Hercule Poirot and the elderly amateur detective Miss Maple.?Elephants Can Remember, the last book where Poirot appears, was published in 1972, four years before the writer’s death. My favorite and most surprising one was?The Murder of Roger Ackroyd, where you only find out who the murderer is practically on the last page.

Dear reader, if you have come this far, you must be wondering what elephants have to do with the sugar market. Well, this poor scribe’s mind sometimes follow paths that I myself doubt. But I think we are all kind of like that, thoughts unleash and something that doesn’t seem to relate to anything ends up bringing along something else and triggers a line of thought and when you realize it, you have finished the second paragraph.?

The logic that came out of this bizarre thought was this all right. It’s been proven that elephants have the greatest brain among mammals and they also have an unbelievable memory. They can go years without having any contact with an elephant they have once related to and even so they will remember their buddy! Despite being big, they are less lethal. Elephants are responsible for the death of 450-500 humans yearly, while the tiny little mosquito kills 700,000 humans per year. But enough of principles and let’s get down to business.

About 30,000 elephants live in India, and I started asking myself if any of these pachyderms that live in that nice country remembers when the leaders of the major organizations linked to the sugar market swore that India would export 6.3 million tons of sugar tops in the 2021/2022 crop.

Back then (October/2021 to September/2022) the Indians dumped on the foreign market – according to USDA (Department of Agriculture of the United States) numbers – 11.9 million tons of sugar, 90% above the estimates of their leaders. There’s nothing wrong with that; they are right, and if they can make a profit, they should go ahead and sell - you’re just naive if you buy into it.

There were good reasons for that, of course. Since the pandemic affected that country’s (and worldwide) consumption, in addition to the banning of parties such as Ramadan (India has about 180-200 million Muslims) and wedding ceremonies (which, like in Brazil, mostly occur in May), there was a great stock in India which was reduced by at least 3 million tons of sugar during this period. That is, Indians did what they had to do.

So as not to forget, as elephants do, back then, believing that India would follow through on what it had promised, that is, limit its exports to 6.3 million tons, the average price seen in NY in the first six months into the Indian crop (from October/2021 to March/2022) was 19.05 cents per pound, 350 points above the same period of the previous crop. When the market realized the sugar avalanche they were moving, prices settled in the following months.?

Recently when the market touched on 22 cents per pound, after having skyrocketed thanks to the huge purchases of speculative funds rather than the absolute truths and fantasy narratives, the GOI jumped the gun and said that India would stop sugar exports. As India will have general elections in April/May 2024, it’s just normal for politicians to say whatever their voters want to hear and – let’s not forget – about 50 million people (and voters) depend on sugarcane in the country, among sugar cane growers and their families.

This week, India again threatened to ban sugar exports from September/2023 on and the sugar futures market in NY closed out the week with October/2023 at 24.89 cents per pound, an amazing 113-point high over the week (almost 25 dollars per ton). The other maturities appreciated between 116 points (the shortest) and 18 points (the longest), clearly an adequacy of the books of the trading companies via spread. The curve price goes up further on the short term than on the long term.

Based on the closing, the discount of the trading months in NY related to the 2025/2026 crop of the Center-South goes up to 117 dollars per ton. That is, on average the 2025/2026 crop is 117 dollars per ton cheaper than the averages of the two months of the 2023/2024 crop (October/2023 and March/2024) still left.

The market high over the week was helped by the industrial consumers who didn’t want “to bet on” the market adjusting and started fixing their sugars for their immediate needs. In our view, this India banning thing won’t hold out and prices will reflect the size of the sugar availability of the Center-South taking shape in the horizon, with or without India. The weather is the only thing that can change our view, but – as we said last week – this scenario isn’t outlined for now.

Our position is still less optimistic than that of most of our readers and we believe that we will see (as we said here a few weeks ago) sugar trading at 22 cents per pound again before Santa Claus climbs through the chimney - the only caveat is the weather!

A spoiler: the abovementioned book in the title is not about a story about elephants.

You all have a great week and those who might have gotten excited about the book tips, enjoy the reading experience.

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Arnaldo Luiz Corrêa