Porto Alegre, August 16, 2021 – Bullish movements due to frosts in Brazil’s Center-South were neutralized by the increase in exports from India beyond the quota set by the government. The month of July was marked by almost stability of averages in comparison with the immediately previous period, in a movement that contrasted with the strong annual advance. While the July average advanced by only 1.3% in the margin, there was a 48% rise year over year, being one of the sharpest changes observed so far in 2021. Much of this strong growth stems from the statistical loading from last year’s very low average prices. It was during that period that the pandemic crisis broke out, causing the international prices of the commodity to plummet on the New York exchange.
On the other hand, in the short term, it was possible to observe a slight appreciation of the averages between June and July. Between the two months, the change was actually very timid, evolving from 17.35 to 17.58 cents. This short-term stability stemmed from the neutralization of forces between fundamental vectors of India and Brazil. In India, local exporters increased their sales beyond the quota stipulated by the government. Quotes above 17.50 cents generated profitability for Indian exporters even without official subsidy.
On several occasions, daily quotes even surpassed the mark of 18.00, being largely neutralized on the same day or at most in the previous trading session. This expansion of supply from India neutralized the perception of a shortfall in the current crop in Brazil’s Center-South, which, with the accumulated effects of frost and drought, ended up keeping prices in New York firm above 17.50 cents even with ample Indian supply. However, from August, SAFRAS & Mercado warns that the Brazilian crop losses tend to be more evident, as well as the proximity of an earlier than normal off-season, which will form a much more solid base for new advances in New York.
In this context, in July, the average closing price of the October/21 contract on the New York exchange was 17.58 cents. In comparison with the same month last year, there was an increase of 48.50% over the average of 11.84. In the margin, there was an appreciation of 1.34% over the average trading of 17.35 cents in June. Expanding the analysis scope, we see that the average price for July this year was 31.55% above the average price for this period during the last five years, which is currently around 13.36 cents.
In the previous month, current prices were 27.70% higher than the five-year average of 13.58 cents for the period. As a result, the five-year average price in June and July dropped by 1.63%, while the October/21 price line ended up advancing 1.34% in the margin. Therefore, the reading is that there was an increase in the distance between the price line and its historical average line. For the month of July, SAFRAS & Mercado expected prices around 17.40, which stood 1.02% below the effective average price of 17.58 cents for the period. For the month of August, SAFRAS & Mercado expects prices around 17.80 cents, which must mean an annual increase of 38%, together with highs of 1.26% in the margin and 29% on the five-year average price for the same period.