August 13, 2019 / 8:07 PM / 4 months ago

UPDATE 1-Brazil's Sao Martinho avoids sugar hedge, sees mid-term price recovery

(Adds more details on company’s strategy, comments from CFO)

By Marcelo Teixeira

SAO PAULO, Aug 13 (Reuters) - Brazilian sugar and ethanol maker Sao Martinho SA is refraining from hedging sugar for the next season, believing that prices have reached a floor and are likely to recover in the mid-term, Chief Financial Officer Felipe Vicchiato said on Tuesday.

“I don’t think sugar prices could fall further, that is why we are not doing much hedge for next season,” Vicchiato told analysts in an earnings call.

Benchmark raw sugar prices in New York remain close to levels seen by many producers as not profitable, below 12 cents per pound, a result of excess production in countries such as India and Thailand.

Vicchiato said Brazil’s center-south region should produce around 25 million tonnes in the current season, almost 10 million tonnes less than the record seen in 2017-18. He forecasts similar production levels next year, which could finally drive global stocks down and push prices higher.

“Importing countries remain with high sugar stocks. That is preventing prices from recovering,” he said.

Sao Martinho, which reported a 12% fall in quarterly earnings, is giving preference to ethanol over sugar in its production mix, as are most companies in the sector due to better returns.

Vicchiato said the strong ethanol demand is avoiding a repetition of last year’s stocks buildup. In addition, he said ethanol supplies in the Brazilian market could fall if a tariff-free import quota ends.

Brazil’s tariff-free ethanol import quota of 600 million liters per year, mostly filled by U.S. exporters, will end by Aug. 31 if not renewed. The government is still evaluating the issue.

Sao Martinho said there are estimates in the market forecasting a reduction of 300 million liters per year of imported U.S. ethanol if the quota is not renewed, which would lead to all imports being taxed by 20%. (Reporting by Marcelo Teixeira; editing by Jonathan Oatis)

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