23 de noviembre de 2015 / 19:29 / en 2 años

Brazil mills boost sugar hedging; higher output seen - analyst

SAO PAULO, Nov 23 (Reuters) - Brazil mills sharply increased their sugar hedging for the new center-south cane crop compared to the same period last year, locking in positive margins in expectation of higher sugar production in the new season, according to independent sugar and ethanol consultant JOB Economia.

Brazil’s main cane belt is finishing the 2015/16 cane crop, which has been impacted by excessive rains. Higher humidity, however, is boosting prospects for the 2016/17 crop that will likely start earlier next year than normal, around March.

“Mills hedged much more new-crop sugar than they had done at this time last year,” JOB’s chief analyst and director Julio Maria Borges told Reuters.

“This is due to favorable prices, considering the local currency recent slide, but also because mills expect to produce more sugar next season,” he said.

Recent data from some of Brazil’s largest cane processors confirm the trend.

Raízen, the joint venture between Brazil’s Cosan SA Indústria e Comércio and Royal-Dutch Shell, have hedged forward 958,000 tonnes of sugar to be produced in the 2016/17 crop by end of September, compared to 565,000 tonnes at same time a year earlier.

Biosev SA, the sugar and ethanol company controlled by French commodities trader Louis Dreyfus, hedged 863,000 tonnes of sugar for 2016/17 versus 348,000 tonnes last year, according to its recent earnings report.

Cosan’s chief executive, Nelson Gomes, told market analysts the company had stepped up hedging after September and that the early November number was closer to 50 percent of the exportable volume, something around 1.6 million tonnes.

Biosev’s chief executive, Rui Chammas, said sugar was already paying a premium over ethanol and that Brazil’s next crop could have a production mix heavier on sugar.

JOB’s Borges says Brazilian mills movement is one of the reasons sugar futures in New York are inverted, with longer expiration contracts trading at prices below those on contracts in the near term, not reflecting carrying costs.

Luiz Gustavo Junqueira Figueiredo, commercial director at Alta Mogiana mill, said futures prices are promising better returns than the average in the current crop, so it is a good moment to hedge.

“Larger groups hedged forward between 40 percent and 70 percent of next season’s output,” said Figueiredo.

“The positive side is that mills can guarantee their margins, but this leaves the market with less sales from here out, so fluctuations of 100 points in two sessions, for example, could happen more frequently,” he said.

Reporting by Marcelo Teixeira and Roberto Samora; Editing by Tom Brown

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