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Sugar Hedging by Brazilian Mills Way Ahead of Average

27 Feb 2021 7:30 am
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Mumbai (Commodities Control) – The volume of sugar Brazilian mills have hedged using futures contracts in New York has soared to 80.5% of their expected exports in the 2021/22 season, way ahead of average for this time of the year, according to a report released on Friday.

Archer Consulting, a firm that advises sugar companies on hedging strategies, said mills in Brazil have also advanced on price fixation for the 2022/23 crop, hedging around 25% of their projected exports for that season.

According to the consultancy, last year at this time Brazilian producers had hedged 51% of sugar exports. In previous years, that volume stayed between 30% and 45%.

The reason for such a large hedging is rising sugar prices at the exchange and the depreciation of the Brazilian real , which increased mills' gains in local currency.

Archer estimates an average hedging price of 1,619 reais ($290.38) per tonne. Cost of production in Brazil is estimated at around 1,100 reais per tonne (FOB Santos), so although the average hedging is distant from current higher prices, it still gives mills good profit margins.

Brazil is the world's largest sugar producer and exporter. Its next production season starts in April, running through early December.

Archer estimates 2021/22 exports will reach 25 million tonnes.

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