BRAZIL: Mills repurchase sugar for future delivery

Published: 07/10/2017, 2:27:46 PM

Some Brazilian mills have decided to repurchase a portion of the sugar they had agreed to deliver to trading companies throughout this season, reports Valor Econômico newspaper.

Between 500,000 and 1 million tonnes of sugar have been repurchased this season, according to estimates by Arnaldo Corrêa of Archer Consulting. This number can increase, according to traders who requested anonymity but said they've been asked to do this type of operation.

Considering the estimates for Brazilian sugar production this year, the total sugar volume repurchased so far is small. Sugarcane industry association UNICA estimates that production in the centre-south will reach 35.2 million tonnes this year. Projections oscillate within a 1 million difference up and down among other analysts.

The repurchases occurred when future sugar prices began to plummet. Sugar contracts dropped 18.2% in New York during the first quarter of the season.

Some mills repurchased the sugar because they thought the price would rise, which did not happen, according to traders sourced by the newspaper.

Other mills had a tighter cash flow, and decided to repurchase sugar because they needed the resources to keep operations running. These mills decided then to use more sugarcane to produce ethanol, because they are paid for the biofuel as soon as it is delivered to distributors' trucks.

Some of the companies that made repurchases are Odebrecht Agroindustrial, Clealco and Abengoa, according to traders. The companies declined to comment for the story.